This week is all about inflation data, retail spending, prices paid, and central bankers. Today encapsulates pretty much all of that in 2 trading sessions as we have an extraordinary amount of Fed speakers later today. The momentum in the US dollar is pushing most of the forex markets around so we could see an acceleration in that trend if the FOMC members all come out saying a rate hike is imminent. Inflation in the UK is running hot and the same is expected for Europe and Canada.
Today will be marked by inflation data and speeches by FOMC members. CPI data from the UK exceeded expectations before the London session began. During October, UK inflation jumped to 4.2%, the highest rate since December of 2011 and above market expectations of 3.9%. The main drivers of inflation have been housing and utilities, namely electricity, gas, and liquid fuels, reflecting an increase in global energy prices and in particular gas prices. For the UK this all coincided with the increase in the cap on energy prices at the beginning of October.
The GBPUSD has already tested yesterday’s low and high. A close in the green today would signal that the buyers are in control but if that close doesn’t make a dent into the 1.3500 region traders will begin to worry that the bears could step back in. Rising inflation and growing UK employment are teeing up a rate hike in December, and the Bank of England governor said the previous MPC meeting was a close call. This would suggest that the markets need to reprice the pound higher. Whether the BoE can get a rate hike in before the Fed will be key for the GBPUSD to sustain growth against the US dollar.
The EURGBP has swept the lows as the single currency underperforms today ahead of inflation data. The CPI is final data readings, so no surprises are expected. There is an important 30-year bond auction in Germany to watch out for and the ECB is releasing their Financial Stability Review which could bring some volatility to the crosses.
The forex heatmap is mixed today with no clear risk-on or risk-off direction currently. The pound has been strong for a few days now but this morning the New Zealand dollar has taken the top spot after a couple of days of relative weakness. At the forex market regular trading hours closed last night the New Zealand PPI data came in under the previous reading. The New Zealand PM has said that the lockdowns are expected to end and move to a traffic light system after November 29th.
The Aussie has bounced off the rising trend line but is currently trading under the 3 major moving averages. Momentum is to the downside so I am now watching price action to see if we can get below the trend line for a breakout, retest, and continuation trade.
The daily USDJPY chart has clearly broken out of the bull flag chart pattern so now we should turn our attention to the weekly swing highs. 118.70 looks like the next logical target for a test of liquidity as there is little market structure above to act as resistance and the moving averages are all showing momentum is accelerating to the upside.