Cable riding on strong UK GDP
UK GDP growth came in at 0.8% Q/Q, 2.6% Y/Y, higher than expectation of 0.7% Q/Q, 2.5% Y/Y. Cable continues to surge higher, pressing 1.8558 resistance now. Dollar’s weakness resumes in European session after consolidating mildly against other majors in Asia. With no important economic indicators from US today, dollar’s weakness will likely continue as effects of Bernanke’s dovish messages still weight on.
Another key even today will be Canada’s June CPI inflation which is expected to moderate to 0.1% mom while yoy growth remains at 2.8%. BoC said in their last statement that “the current level of the target for the overnight rate is judged at this time to be consistent with achieving the inflation target over the medium term, ” after keeping rates unchanged at 4.25%. David Dodge has made it clear that he doesn’t want a sharp appreciation in Canadian dollar which could hurt manufacturers. It would be interesting to see if Dodge will hold back from the dovish comments if we’re getting a much stronger than expected CPI numbers today.
Yesterday’s FOMC minutes indicated that the last rate hike decision in June was a close call with members warning about the risk in growth moderation and inflation pressure ahead. The minutes echo Bernanke’s two day testimony and adds to the current uncertainty, even from Bernanke’s point of view, on what Fed would do next in Aug’s meeting.
GBP/USD
Daily Pivots: (S1) 1.8426; (P) 1.8472; (R1) 1.8529
Cable’s rally from 1.8174 resumes in European session and extends further after better than expected UK GDP growth. At this point, cable is pressing mentioned cluster resistance of 1.8558 (50% retracement of 1.9024 to 1.8090 at 1.8557). Bias will remain on the upside as long as cable stays above 1.8466 minor support. As discussed before, above 1.8558 will signal a strong rebound is underway towards 100% projection of 1.8090 to 1.8538 from 1.8174 at 1.8622. Break will encourage further rally to retest 1.8877 resistance.
However, cable could still be treated as in sideway consolidation which started from 1.8090. A drop below 1.8466 will indicate a top is possible formed with risk of retreat towards 4 hours 55 EMA (1.8375). Sustained trading below this EMA will argue that the rebound from 1.8174 has completed. Otherwise, short term outlook remains bullish and further rally is still in favor.
Read full report (EUR/USD, GBP/USD, USD/CHF, USD/JPY) here.
Shing-Ip Tsui (Shing) is the founder and CEO of www.ActionForex.com. ActionForex is set up with the aim to empower individual forex traders by providing insightful contents. Analysis reports, live pivot points on majors and crosses, etc are provided with collection of carefully selected educational articles and free trading ebook downloads.