UK inflationary pressures persist

The USD edged lower against its counterparts yesterday, yet the overall sideways movement seems to remain despite some hawkish comments made by St. Louis Fed President Bullard that he leans towards more monetary policy tightening possibly 75 basis points rate hikes in the coming meetings, while Atlanta Fed President Bostic seems to favor just one more rate hike. As for US stock markets we tend to note that yesterday there were mixed signals. It should be noted that Goldman Sachs despite a drop of the revenue figure showed an improved profitability. It seems that the cost-cutting drive implemented by Goldman’s management at the beginning of the year, finally kicked in. Nevertheless the improved profitability was not able to save Goldman’s share price from falling yesterday.

Back in the FX market, we note that investors and analysts became more pessimistic about the outlook of the German economy according to ZEW, while conditions on the ground seem to be improving. The pessimism expressed about the German economy may also be related to the disagreement expressed within EU circles on whether the Union can decouple from China or not, a huge issue to which the German economy is particularly sensitive. Also, we note the release of the UK’s employment data for February that showed that despite the unemployment rate ticking up the UK employment market was able to create a high number of new jobs despite expectations for the employment figure to drop. The release may allow BoE to maintain a hawkish stance which in turn could support the GBP. It should be noted that the persistence of the UK’s inflationary pressures exactly stresses the need for more rate hikes by BoE. Currently, the market expects BoE to proceed with a 25-basis points rate hike in its next meeting with GBP OIS implying a 72% probability for such a scenario to materialize, which in turn may keep the pound supported at a monetary level. Last but not least we note the slowdown (largely as expected both on a core and a headline level) of Canada’s CPI rates for March which may allow BoC to solidify its stance to remain on hold and thus could weaken CAD. On the other hand, we have to note BoC Governor Macklem’s comments that the Canadian economy is on the course for a soft landing, which may encourage CAD traders.

GBP/USD remained relatively unchanged yesterday, staying comfortably between the 1.2465 (R1) resistance line and the 1.2270 (S1) support line. We tend to maintain our bias for the sideways motion to continue, especially after cable’s price action was able to break the upward trendline guiding it since mid-March. Please also note that the RSI indicator below our 4-hour chart runs along the reading of 50 enhancing the possibility of a steady course by cable. Should the bears actually take charge of the pair’s direction we may see it breaking the 1.2270 (S1) support line and aim for the 1.2115 (S2) support level. Should the bulls take the reins of the pair’s direction, we may see cable breaking the 1.2465 (R1) resistance line and aim for the 1.2660 (R2) level.

Other highlights for the day:

During today’s European session, we note the release of the Eurozone’s final HICP rates for March, while on the monetary front, ECB’s chief economist Lane speaks. In the American session, we note the release of Canada’s House starts and Producer Prices, both being for March, while oil traders are expected to keep an eye out for the weekly EIA crude oil inventories figure. On the monetary front, please note that ECB’s board member Schnabel is scheduled to speak. During tomorrow’s Asian session, we highlight the release of New Zealand’s CPI rates for Q1 and Japan’s trade data for March. As for speakers we note that Chicago Fed President Goolsbee, BoE MPC member Tenreyro and NY Fed President Williams are scheduled to make comments.  

GBP/USD H4 Chart

Support: 1.2270 (S1), 1.2115 (S2), 1.1925 (S3)

Resistance: 1.2465 (R1), 1.2660 (R2), 1.2865 (R3)

EUR/USD H4 Chart

Support: 1.0855 (S1), 1.0695 (S2), 1.0530 (S3)

Resistance: 1.1000 (R1), 1.1140 (R2), 1.1270 (R3)

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