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Pound rallies as UK Inflation Rate Jump to 9-Year High

The GBPUSD has found support at the weekly pivot once more as buyers step back in on higher-than-expected inflation data this morning. Worries around North Korean ballistic missiles haven’t emerged after the country test-fired 2 long-range missiles last night. Though there has been a move towards the safe-haven currencies at the London open.

Market Brief

The Chinese yuan is slipping today after economic data out of the world’s second-largest economy came in under expectations, along with more regulatory pressures from the Chinese governments on other sectors. Coronavirus outbreaks have put consumers off and the year-over-year retail sales came in at 2.5% disappointing analysts that were expecting a smaller drop to 6.9%.

The AUDUSD dropped on the disappointing Chinese data but has rebounded from an area of balance, suggesting that there are more buyers waiting at these lower levels. Momentum is to the downside as can be seen in the moving averages, but the price action is compressing under the 200 ema (blue) which is starting to flatten off. If we get a weaker dollar this week there is a high probability of the AUDUSD closing above the 50 ema (green) and that would become dynamic support for a new test towards the 200.

Yesterday the GBPUSD swept the highs of the double top at 1.389 that I had been monitoring and immediately collapsed back to the weekly pivot.

This morning’s UK inflation data came in higher than expected and is now at a 9-year high. As we see inflation readings rising the market re-prices expecting the central bank to raise interest rates.

Later on today there will be inflation data dropping for the Canadian economy, US industrial production, and the EIA weekly oil report.

Looking at the forex heatmap the Canadian dollar is currently weaker than its peers bar the New Zealand dollar so a GBPCAD or GBPNZD may be a good pair to trade today.

The GBPCAD has taken the previous week's high so is continuing with its bullish momentum making higher highs, we just need to see a big push now to ensure the weekends with a higher low.

On an intraday time frame, the GBPCAD is within an hourly rising triangle so traders may be tempted to buy an aggressive breakout for the push higher. Personally, I would wait for a breakout, retest, and continuation as support on an aggressive breakout would be some distance below.

The GBPZD to me is in a downtrend but is rallying to test the breakdown level around 1.965. The double bottom that formed with the latest swing low looks very tempting to trade back through should we find sellers higher up, probably around the 1.9625 level. For today the pound traders are looking strong bolstered by their view on the inflation rate hike dynamic. The UK House Price Index (HPI) year-over-year data is probably going to come in very high. House prices in my area have risen by 20% in the last few months with people making money on their houses as they wait for their completion dates. As of June 2021, the average house price in the UK is £265,668, and the index stood at 139.34. Property prices have risen by 4.5% compared to the previous month and risen by 13.2% compared to the previous year. Expectations for this reading are for a drop but I think there will be a surprise to the upside.

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