The world is seeing rising inflation and the central banks are going to have to hurry up with their monetary policy shifts towards tightening or risk consumer prices going out of control. The Bank of England Governor today painted a landscape fraught with risks and inflation-related problems.
Market Wrap
The number of housings starts in the United States rose by 1.4% in December 2021 compared to the revised reading from the previous month, according to the US Census Bureau. This figure increased 2.5% on an annual basis. Single-family housing starts fell 2.3% in December after coming in at 1,712,000 in December.
As investors turned to safe-haven assets today, precious metal prices increased, with silver surging over 3% at one point. Precious metals have gained nearly 3% over the past week, and by more than 6% over the past 30 days as they are used as a hedge against inflation.
Fears about the next monetary policy decision by the United States Federal Reserve, as well as concerns related to the Russia-Ukraine spat, seemed to boost appetite for gold as forex flows came out of the US dollar.
The Fibonacci extension shows Silver made an equal move higher from the lows today in comparison to the previous impulsive move from yesterday. The November 2021 swing high and the $25.40 remains a significant level for the bulls to get above, but the liquidity sat at the double bottom and the $21.50 price level seems a likely target too. Trading in the middle of this range is likely to see the bulls and bears equally get chopped up.
Governor Andrew Bailey, of the Bank of England (BoE), noted earlier today that the central bank expects natural gas prices to rise further into 2022 and not "come off" until the middle of next year, which is "much longer" than expected.
Bailey highlighted the rising costs of oil, as well as the tensions between Russia and Ukraine as important factors within the BoE's December Financial Stability Report. As for the energy market, Bailey noted that it remains "very volatile." However, he reiterated his previous view that the rising inflation rate and the supply chain problem are temporary in nature.
He noted that the labour market in the United Kingdom is "very tight" now, a factor that poses concern since it could lead to higher wage negotiations, thus adding fuel to the rising inflation. Finally, he stated the BoE will not hesitate to intervene on interest rates as CPI came in higher earlier this morning.
According to the UK's Office for National Statistics, the Consumer Price Index (CPI) rose 5.4% year over year and 0.5% monthly in December 2021. Based on historical modeled data, the 12-month inflation rate reached its highest point since March 1992 in December.
In today’s video trading idea, I outlined how the EURGBP would continue lower.
On the 30-minute chart, I said that a retest of the morning’s breakout level would be a signal for the short sellers to get involved with a classic retest trade. For a short while, this looked like it could be a decent trade entry but since BoE Governors' bearish commentary and the London close, the pound has started to fall against the euro. The risk is fixed at the 0.83413 level and the TP is down at a significant monthly low at 0.82748, giving me a risk-reward ratio of 1:2.