Another light economic calendar today, though we did receive some surprising figures from the UK’s inflation data. Key themes persist, with rising inflation pushed on by rising energy costs and COVID-19 disruptions. A weaker US dollar will support the oil prices and a move towards tightening and rate hikes from the Central Banks is currently being priced in with the likes of the pound and New Zealand dollar moving higher.
Today, the Office for National Statistics (ONS) released September's inflation data. Across a few key metrics, there were some surprises. The Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 2.9% in the 12 months to September 2021, down from 3.0% in August. CPIH increased by 0.3% on the month of September 2021, compared with a 0.4% increase in September 2020. A large portion of the downward contribution from restaurants and hotels reflects the recovery of restaurant and cafe prices after Eat Out to Help Out ended in August. Everyone will focus on the Consumer Prices Index (CPI), which rose by 3.1% in the 12 months to September 2021, down from 3.2% in August. CPI increased by 0.3% in September 2021, compared with a 0.4% rise in September 2020.
The GBPUSD has taken a turn to the downside following the CPI data and has made a new swing high above the 1.3750 breakout level. We will be watching this level now to see if it can act as support before making any decisions on whether to make a trade today. Sentiment will be getting worse for the UK as key officials from the NHS are talking up a lockdown ahead of a surge in COVID-19 cases this winter. NHS Confederation chief executive Matthew Taylor has urged the government to bring back certain measures, including mandatory face coverings in public places. Though this morning Business Secretary Kwasi Kwarteng has insisted there will not be another national lockdown after Mr. Taylors warned to the PM that 'Plan B' coronavirus restrictions must be enforced immediately to prevent the UK "stumbling into a winter crisis".
The ActivTrader sentiment indicator for the GBPUSD is showing that a growing number of traders are becoming bearish on the pound which is a good sign generally for anyone that had been long the last few days.
The German national statistical office Destatis announced this morning that German producer prices in September were 14.2% higher than a year earlier. In August, producer prices had grown by 12%. These figures show that German producer inflation has hit a 47-year high. As the world suffers from higher energy costs, the price of energy increased 32.6% from September 2020 to September 2021, led by an increase of 58.9% in natural gas.
It is thought that this will be a transitory rise as Russia has an almost unlimited supply of Gas and is prepared to send more to Europe. The producer price index increased 2.3% month-over-month in September.
The German DAX is leading the European equities this morning rising by 0.20% in early trading. If the price action should see the retest of the rising trend line that it broke several weeks ago, the resulting pattern would be of a higher all-time high.
The forex heatmap is quite bullish for the risk-on assets today, as the commodity pairs are clearly the strongest and the Swiss franc is one of the weakest. The yen and US dollar are mixed showing that bar the commodity pairs there are no clear direction inflows.
The NZDUSD has risen nearly 3% this week and has cleared a significant descending trend line and swing high, showing that the Kiwi is looking for a continuation of the bull trend it was in from the 2020 lows.
Maybe unsurprisingly, the retail traders on the ActivTrader platform are extremely short the NZDUSD pair and are likely to get squeezed out of their positions over the course of the rest of this week. If this correction is over and we were to assume that the leg up from the lows in 2020 to the highs of February 2021 was an impulsive move. This next impulsive move to the upside could take prices to near 30-year highs, with the Fibonacci 161.80% extension reaching as high as the 0.9500 level.