GBP/USD holding onto 1.39 as UK inflation, US Fed loom

• Markets are already coiling ahead of the UK CPI and US interest rate risk events.
• A big miss for either of these figures could spell disaster for the GBP/USD pair.

The GBP/USD is retreating ahead of the European session, testing near the 1.3915 region. Risk aversion has been the name of the game lately with fears of a trade war between the US and China (and the US and Europe for that matter) over Trump's tariffs and protectionist strategy.

UK inflation, US interest rates

The week ahead looks particularly robust for the Sterling-Dollar matchup with the UK's Consumer Price Index dropping on Tuesday and the US Fed's interest rate statement on Wednesday. The pair can expect to play tit-for-tat as the Bank of England (BoE) and the US Fed race to begin lifting interest rates as inflation begins to come back to life after a decade of easy monetary policy and restrained interest rates following the 2008 financial crisis.

The BoE is expected to begin lifting interest rates by this May, and the UK CPI figures coming at 09:30 GMT on Tuesday could help to confirm that expectation, provided the recent contraction in economic activity for the first quarter of 2018 doesn't take too much off the top. The headline year-on-year CPI figure is expected to come in at 2.9%, versus the 3.0% figure for the previous period. On the US side of things, the Fed will be pummeling markets with their Interest Rate Decision at 18:00 GMT on Wednesday, with the markets broadly anticipating a lift from the current 1.5% to 1.75% in the key rate figure.

GBP/USD levels to watch

The pair is seeing support from the 34 EMA at 1.3892, and a break lower will see further support from the last swing low of 1.3890, while resistance currently sits at last week's high of 1.3995 and February's last swing high of 1.4070.