During the early European session on Wednesday, the GBP/USD pair is under selling pressure above 1.2600, with investors eagerly awaiting the release of the UK Consumer Price Index (CPI) for December to provide fresh market impetus. Currently trading near 1.2607, the pair has experienced a 0.18% decline on the day.
Market analysts anticipate the headline UK inflation to show a year-on-year growth of 3.8%, while the Core CPI is expected to rise by 4.9% year-on-year. The release of these figures is poised to influence the direction of GBP/USD.
From a technical perspective, GBP/USD remains below the 100-hour Exponential Moving Average (EMA) on the four-hour chart, indicating a potential for further downside movement. The critical support level is identified at 1.2600, representing both a psychological round level and the lower boundary of the Bollinger Band. A decisive break below this level could lead to a decline towards the December 7 low at 1.2544, followed by the confluence of the round mark and the December 13 low at 1.2500.
On the upside, the immediate resistance level is observed at the January 8 low of 1.2686. Additional resistance barriers include the January 8 high at 1.2767 and the upper boundary of the Bollinger Band at the 1.2800 mark.
The Relative Strength Index (RSI) is currently in bearish territory below 50, indicating a bearish bias. However, the oversold condition of the RSI suggests the possibility of further consolidation before any potential near-term depreciation of GBP/USD. Traders are advised to monitor the UK CPI data closely for potential shifts in market sentiment and subsequent price movements.