EURGBP and GBPUSD, H1 and Daily
UK June CPI came in below expectations, with the headline reading unexpectedly holding unchanged at 2.4% y/y. The median forecast had been for an uptick to a 2.6% y/y clip. Core CPI fell to 1.9% y/y from 2.1% y/y in May, contrary to the median expectation for an unchanged reading. Price rises for motor fuels and domestic gas and electricity were the largest upside drivers of headline CPI, though these were more than offset price declines in clothing and game, among other, categories.
The data will reduce the odds for BoE to tighten at the August MPC meeting, and UK yields and the Sterling have duly dropped quite sharply. One of the central supporting arguments behind BoE’s guidance for gradual tightening is that a tight labour market and low productivity growth will conspire to drive wages and consumer prices up, though this clearly hasn’t been transpiring yet. Aside from the dip in headline and core CPI readings, yesterday’s labour market report showed average household earnings to be rising at just 0.1% y/y in real terms (in the 3 months to May, ex-bonuses).
Meanwhile, last night, the British Prime Minister survived a key vote on a Brexit-related bill by the skin of her teeth, although lost one concerning the regulation of medicines after Brexit, but the Brexit process is looking borderline disorderly. Yesterday, BoE Governor Carney warned of “big economic consequences” to the economy in the event of a no-deal exit from the EU, although he stressed that it would be “premature” for the Central Bank to make judgements on the government’s recently published policy document on Brexit, and he also emphasized that the UK banking sector was appropriately capitalised for a cliff-edge Brexit scenario.
Regarding BoE, the outlook remains on a 25 bp hike in the repo rate to be announced on August 2, which would take the rate to 0.75%. However, this has become a tentative call given the sharpening in Brexit-related tensions in UK politics and today’s miss of inflation data.
The Pound has come under new pressure after the data announcement, with the Cable posting a 14-month lows of 1.3009 while EURGBP has printed 4-month highs above 0.8922.
Hence EURGBP is likely to remain in the positive outlook after breaking above the weekly and daily upper Bollinger Bands pattern along with the 38.2% Fib. retracement level since 2017’s decline. The pair is trading above all 3 DMAs the last 17 days, while momentum indicators remain positive. MACD, RSI still advancing, whilst any intraday pullback remains a chance to buy.
The same story holds for GBPUSD as it is facing 2 of the worse declines of the year. The sharp drift seen since yesterday broke below 1-year Support at 1.3050 and hence it is currently traded at September 2017’s levels. Intraday and daily momentum indicators are signifiantly negative, with the daily RSI sloping lower just a breath away from 30 barrier. MACD oscillator increases in negative area above signal line, while lower Bollinger Bands is expanding further to the downside.
Hence, pressure is likely to continue, with next Support at the round 1.2900 level. To the upside, only a decisive move above the 20-day MA 1.3200 could revert the negative outlook of the asset.
Intraday Support and Resistance levels:
EURGBP
Support: 0.8880, 08850, 0.8808
Resistance: 0.8920, 0.8950, 0.8992
GBPUSD
Support: 1.3000, 1.2935, 1.2900
Resistance: 1.3085, 1.3100, 1.3150
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Andria Pichidi
Market Analyst
HotForex
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