GBP/USD: On the front foot ahead of UK CPI release

• Bears are in trouble due to Brexit deal and bullish technical set up.
• Better-than-expected UK CPI may embolden the more hawkish policymakers at the BOE.

The Brexit transition deal put a bid under the British Pound yesterday, pushing the GBP/USD pair above 1.40 in a convincing manner.

The bears are in trouble as the deal may allow the Bank of England (BOE) to adopt a more aggressive stance on policy tightening. Further, the bull flag breakout on the daily chart indicates scope for a re-test of 1.4345 (Jan. 25 high).  The relative strength index (RSI) is biased bullish.

So, the bulls seem to have regained control and will likely push the GBP/USD pair to 1.41 if the UK February core CPI betters estimate of 2.5 percent year-on-year. The data is scheduled for release at 09:30 GMT. Moreover, a big beat on the inflation number would boost the odds of a BOE rate hike in May.

On the other hand, a weak print could yield a pullback in the cable. That said, the drop could be short-lived, courtesy of the optimism generated by the Brexit transition deal.

GBP/USD Technical Levels

As of writing, the spot is trading at 1.4038. A close above 1.4070 (Feb. 26 high) would add credence to the bullish flag breakout and yield rally to 1.4278 (Feb. 2 high) and 1.4345 (Jan. 25 high).

On the other hand, a move below 1.40 (psychological level) would allow a pullback to 1..3932 (10-day MA) and 1.3909 (21-day MA).