The pound initially moved up today, but then sharply reversed.

Additional pressure on the pair may come from the US side, and inflation will decide everything. Today the consumer price index for October will be published; for beginners, this is the indicator of how much goods and services have become more expensive. The headline monthly figure is expected at 0.3% after 0.6% in September, and core at 0.2% after 0.3%. Core is needed to see whether inflation has accelerated within the economy itself, since it excludes food and energy. Year-on-year headline is expected at 3.9% versus 3.7%, and core at 2.8% versus 2.6%. September's jump was driven largely by gasoline, which rose 9.1%, so the forecast implies half the monthly gain, and any exceedance of these figures will give the dollar a reason to be bought. In addition, Federal Reserve officials Christopher Waller and Michelle Bowman will speak. Waller in early September said he was ready to support holding the rate if inflation continued to decline, but the committee's tone has since changed markedly, so their words after the data can easily amplify the move.

There is another interesting signal. As of November 3, the net short position of large speculators on the pound fell to 59,821 contracts from 79,414 a week earlier. In short, bets on a falling pound have noticeably decreased, whereas in mid-October their number was the highest in nine years. That means part of the recent pound rise was linked to closing those short positions rather than to genuine increased interest in the currency itself. When that buffer runs out, the rally often peters out. If inflation comes in above forecasts and Waller and Bowman back the hawkish line of Goolsbee and Barkin, pound buyers will have almost no arguments left.

Momentum

The price is now at 1.3427, literally at the lower level. A move beyond the boundary is a breakout, but one touch is not enough—confirmation is needed, meaning several consecutive five-minute candles must close beyond the level. Otherwise, it's easy to get caught by a false breakout, after which price returns.

From above 1.3456 is active. A close above opens the way to 1.3481 and then to 1.3501. Today's rise already showed how hard that is: the pair reached that mark but failed to hold and turned down, so buyers need a fresh reason for another attempt, and that reason can only be soft US inflation, which would weaken the dollar. I have significantly less confidence in that scenario.

From below, the reference is 1.3429; a close below it leads to 1.3399 and then to 1.3371. This is the direction I consider primary. The price is already two pips below the level, so much depends on whether it can close candles below it rather than return above. Caution is required here because, before the inflation report, the market likes to make sharp moves in both directions. If there is no confirmation, I prefer to wait rather than enter on the first touch.

Mean Reversion

There are two levels here, 1.3443 and 1.3409, both between the breakout points, so it's easier to distinguish them from Momentum. The upper reference 1.3443 sits thirteen pips below 1.3456 and fourteen pips above 1.3429. If price returns to it, fails to hold, and turns down again, I consider selling toward 1.3429 with a stop above 1.3456, with a small buffer. This pullback is most likely if inflation prints near expectations and the market calms after the initial reaction.

The lower reference 1.3409 lies twenty pips below 1.3429 and only ten pips above the first breakout target 1.3399. The scheme is mirrored. Price falls to 1.3409, finds no continuation, returns above, and then I look to buy with a stop below 1.3399 with a margin. But if the price confidently closes below 1.3409, the reversion is canceled, and the downward breakout plays. Be especially careful here, since the first Momentum target and this level are very close, and a novice can easily mistake a pause within a decline for a true reversal.