This morning the Bank of England released its inflation report information. As expected the Bank of England has lowered growth expectations. Weak growth is substantially contributed to by the debt situation in Europe and slowing growth globally. UK GDP and CPI estimated were also lowered. The Governor King also stated that CPI could reach 5% in the short term but expected it to be around 2% in the medium term. He also stated that monetary policy cannot change the short term inflation rate.
I placed trend lines around the previous consolidation pattern. I have also labeled the highest probability Elliott Wave Count. This is much like the traditional head-and-shoulders technical pattern. The breakout below the lower trend line suggests we will continue to have more bearishness. We are likely to have a rebound to the lower trend line or possibly up to 1.6250 before heading lower.
The converging channel lines that have held the trend since mid-2010 have been clearly broken for a while now. We retested the trend support line as resistance and we have fallen very quickly following the retest. The horizontal support line is the neckline for a medium term head-and-shoulders pattern. A break of this support can take us all the way to 1.5500 and from there the long term target is closer to parity.