The pound will be in focus this morning as the UK reports Inflation data (both CPI and the less important RPI) together with PPI all at 08:30 GMT. Headline year on year CPI is expected to rise to 2.6% from 2.3% with the core figure expected at 2.2% from 1.8% previously. The BOE’s key 2% figure exceeded. The more forward looking PPI data is expected to show a decline (inputs down to 0.1% from 0.4% and outputs down to 0.2% also from 0.4%). UK HPI (House Price Index – the bastion of UK home owning (predominantly older Conservative voters) is also expected to decline from 5.8% to 5.4%. The question remains is inflation really back? My view in the longer term is yes and the squeeze on the UK consumer will continue even with a recovering pound. The UK election is a little over three weeks away and the markets remain complacent of a Tory landslide (anything less than a 80+ seat majority for the ruling party will be viewed negatively), however, the focus remains on the Brexit negotiations and the continued uncertainty that swirls around the next 22 months and beyond.
CABLE (GBPUSD) remains Bullish and possibilities are:
- On the Daily chart 1.2842 remains the line in the sand from the Election announcement on April 18, resistance became support “classic”. Sideways action and big resistance now at the psychological 1.3000 and 1.2985. Offering relatively easy trades at the extremes (fractals) for intraday positions.
- The break below of the 20 DMA Friday and Yesterday, (although it did not hold) may be an indication of weakness to come. The Parabolic SAR turned Thursday (May 9) following buying exhaustion on Wednesday (May 8) with the long wicked on the candle following the Fractal High last Monday (May 8). A breech n break of the 20 DMA would suggest weakness and a break of the 1.2842 low and fractal low would suggest short positions to 1.2750.
- Also on the Daily chart – Remain / Add to long positions above the 20 DMA, and on a breach of the 1.2885 level. Yesterday suggested further strength ahead as the Golden Cross (50 DMA moving above 200 DMA) was confirmed.
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