Ahead of the UK CPI data, we have the implied volatility support and resistance levels for several GBP pairs. For GBPUSD, the resistance is at 1.3540, and the support is at 1.3430. For EURGBP, resistance is at 0.8650 and support at 0.8600. GBPJPY has its resistance at 200.00 and support at 198.00.

Short Term Exhaustion

GBPNZD shows resistance at 2.2945 and support at 2.2810. After the RBNZ announcement, GBPNZD is trading above the third standard deviation implied volatility high, indicating caution for short-term exhaustion as the pair may continue to rise. These levels are based on 1-month implied volatility, providing market-driven support and resistance. By pairing these levels with technical analysis tools, traders can better determine entry, take-profit, or stop-loss points. Implied volatility offers an objective price range that enhances subjective technical analysis. This helps traders create a detailed strategy when assessing GBP pairs in light of economic data releases like the UK CPI.

Market Reaction

With the UK’s July inflation data now out, the market has reacted to the unexpected figure. The Consumer Price Index came in at 2.3%, a bit above the expected 2.1%. This surprise has sparked speculation about the Bank of England’s future actions and has pushed the pound beyond some previous price expectations. For GBPUSD, the pair moved past the 1.3540 resistance level following the news. Prices are now stabilizing around 1.3580, indicating that traders expect a more hawkish Bank of England in contrast to a neutral US Federal Reserve. This policy divergence hasn’t been as pronounced since late 2023, presenting new opportunities. Derivative traders should be aware that implied volatility may remain high leading up to the Bank of England’s September meeting. The market is now estimating nearly a 50% chance of a rate hike, a marked increase from last week. This situation makes strategies like buying straddles or strangles appealing, as they can profit from significant price moves regardless of direction. For GBPJPY, the pair is nearing its 200.00 resistance level. This strength reflects the widening interest rate gap between the UK and Japan. We remember the sharp uptrends this pair experienced in 2023 under similar circumstances, suggesting further increases could happen if the BoE remains hawkish. The main point for the coming weeks is that the established volatility ranges are resetting. Old resistance levels, such as 1.3540 for GBPUSD, should now be seen as potential support zones during dips. Using these data-driven levels for setting entries or stop-losses is a smart approach. Create your live VT Markets account and start trading now.

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