US CPI Rates remain elevated, UK CPI rates cool

USD remained relatively unchanged yesterday against its counterparts as the release of January’s CPI rates failed to excite traders. We note that the headline CPI rate slowed down just a bit to 6.4% yoy while expectations were for it to drop to 6.2% yoy, while the month-on-month rate accelerated to 0.5%. Overall, the release tended to highlight the persistence of inflationary pressures in the US economy and in our opinion could force the Fed to maintain its hawkish stance, hiking rates further and keeping rates at a high level for a longer period and practically undermining the market’s expectations for a U-turn of the bank and any possible rate cuts in the current year.  It should be noted that Fed officials sounded hawkish yesterday, as Dallas Fed President Logan stated that the bank must be ready to hike rates for longer than now expected, Philadelphia Fed President Harker mentioned that inflation is moving lower yet only slowly, and New York Fed President Williams stated that the bank should “stay the course” on rate hikes.

US stock markets ended the day mixed after a rather volatile session, with Coca-Cola’s earnings report meeting market expectations, yet its share price declined and today we note the release of the earnings reports of Cisco, Equinix and AIG in the US while from the UK we note Barclays and Glencore, which could meet the headlines and create some commotion. Back in the FX market, we note that UK’s inflation for January cooled to 10.1% yoy, slightly more than expected, being in line also with the slowdown of the average earnings growth rate for December, which may allow BoE to ease its hawkish tone. The easing of inflationary pressures seems also to be at least partly a result of a drop of fuel prices, yet at this point the overall picture remains worrisome as despite the slowdown, inflation rose at a double-digit percentage, underscoring the ongoing cost of living crisis in the UK. Last but not least we note that in Australia RBA Governor Lowe, defended the bank’s decision to continue its rate hikes before the Australian Senate, yet seems to be facing strong political resistance.

GBP/USD dropped during today’s early European session, as it broke the 1.2115 (R1) support line, now turned to resistance. We tend to maintain a bearish outlook for the pair and should that be realised, we may see cable reaching if not breaching the 1.1925 (S1) support line. On the other hand the pair seems to be scoring continuous higher peaks and higher troughs marking an uptrend. Should the bulls take over, we may see the pair reversing course, breaking the 1.2115 (R1) resistance line and aim for the 1.2270 (R2) level.

AUD/USD dropped today aiming for the 0.6900 (S1) support line. As long as the pair remains between the 0.7010 (R1) and the 0.6900 (S1) levels, we maintain our bias for the sideways motion to continue. For a bearish outlook, we would require a clear breaking of the 0.6900 (S1) support line and for the pair to start aiming for the 0.6800 (S2) level. For a bullish outlook, we would require the pair to reverse direction and break clearly the 0.7010 (R1) resistance line, aiming for the 0.7125 (R2) level.   

Other highlights for the day:

During today’s European session Eurozone’s industrial production growth rate for December. In a packed American session, we note from Canada the release of the number of house starts for January and December’s manufacturing sales growth rate, while from the US we get the NY Fed Manufacturing index for February, January’s industrial production growth rate with the highlight being the US retail sales growth rate for January. Oil traders, on the other hand, may be more interested in the release of the weekly EIA crude oil inventories figure while on the monetary front, we note that ECB President Christine Lagarde may make some statements. During Thursday’s Asian session, we note the release from Japan of the machinery orders for December and January’s trade data, while the highlight of the session is expected to be the release of Australia’s employment data for January.    

GBP/USD H4 Chart

Support: 1.1925 (S1), 1.1740 (S2), 1.1565 (S3)

Resistance: 1.2115 (R1), 1.2270 (R2), 1.2465 (R3)

AUD/USD H4 Chart

Support: 0.6900 (S1), 0.6800 (S2), 0.6720

Resistance: 0.7010 (R1), 0.7125 (R2), 0.7265 (R3)

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