GBP & CAD Boosted by CPI
Sterling and Canadian
dollar are in focus today as both currencies were boosted by the strong CPI inflation report. Meanwhile, dollar softens mildly against yen and swiss franc after
a slightly better than expected housing report. US housing starts increased 9% to 1.53m in Feb, beating expectation of 1.45m though prior data was revised slightly down to 1.4m. Building permits decreased 2.5% to 1.53m. basically inline with expectation.
Earlier today, Sterling was boosted across the board by a rebound in CPI and RPI inflation. Feb CPI rose 0.4% mom, pushing yoy rate to 2.8%, up from prior 2.7%. Core CPI also accelerated to 1.7% yoy from 1.6%. RPI rose 0.7% mom, rebounding from prior -0.5% fall, beating expectation of 0.5%, 4.3%. Core RPI also rebounded by 0.5%, pushing yoy
rate to 3.7%, above expectation of 0.4%, 3.5%. Price pressure remains upwardly
biased and probably in a more aggressive fashion than BoE members thought. Last week’s PPI data already showed that factory gate inflation could be re-accelerating too. Altogether, inflation pressure could continue to increase as economy remains strong. While some expects another rate hike from BoE in Q2, the timing could be pulled ahead if inflation outlook doesn’t improve.
On the other hand, the Canadian dollar surged after stronger than expected CPI inflation data. Headline CPI rose 0.7% mom comparing to expectation of 0.3%, fastest monthly rate since Sep 05. Core CPI rose 0.5% mom, pushing yoy rate to 2.4%, much higher than consensus of 0.3%, 2.1% too. Such inflation outlook has basically eliminated that BoC will have a rate cut any time soon. Also, Canadian dollar was given further boost after slightly better than expected US housing data on the assumption that Canadian exports to the US home building industry will benefit if US home construction holds up.
GBP/USD
Daily Pivots: (S1) 1.9393; (P) 1.9431; (R1) 1.9478; More
Cable surges to as high as 1.9597 today so far. Break of mentioned falling trend line resistance (now at 1.9536) confirm that the corrective fall from 1.9913 has completed with three waves down to 1.9183 already. Hence further rally is now expected towards 1.9672 resistance. Break will encourage a retest of 1.9913 high. Meanwhile, touching of 1.9505 resistance turned support will turn intraday outlook consolidative first. But a break below 1.9395 is needed to indicate rise from 1.9213 has completed. Otherwise, further rally is still in favor.
In the bigger picture, strong rebound from mentioned 23.6% retracement of 1.7047 to 1.9913 at 1.9237 favors the case that cable corrective fall from 1.9913 is merely correction to the rise from 1.8517 only. Break of 1.9672 resistance will add more weight to this view and should bring another high above 1.9913 and attempt to meet 2.0106 cluster resistance before having a medium term reversal.
However, note that bearish divergence conditions remains in weekly RSI and daily MACD, suggesting a medium term top is around the corner and the up trend from 1.7047 might complete at 2.0106 cluster resistance (1992 high, 100% projection of 17047 to 1.9024 from 1.8090 at 2.0067). On the downside, break of 1.9395 will turn focus back to 1.9183/9237 support zone again.
Read full report (EUR/USD, GBP/USD, USD/CHF, USD/JPY, EUR/JPY) here.
Shing-Ip Tsui is the founder and CEO of
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