After the headline US CPI data yesterday the strength of the US dollar negatively impacted the major crosses. However, this morning the pound is pushing higher as the ONS data showed better GDP figures than expected.
There has been a swath of UK data out this morning and the pound is catching a bid having spent the Asia-Pac session on the back foot following the higher-than-expected US CPI reading yesterday.
The forex heatmap shows both the USD and GBP rising as flows come out of the euro and Antipodean currencies. Notably, the Swiss franc is weak this morning too after the Swiss CPI came in better than expected, so shorting the AUDUSD or EURUSD may be the only play during the London session.
UK GDP estimates Month-on-Month dropped -0.2% but that came in better than the expected drop of -0.6%. The quarterly estimate came in at 1.0% but missed expectations of 1.1%. Year-over-Year for Q4 beat expectations but more importantly, the previous reading was also revised higher by 0.2% so the long-term trend is getting better, and this is after more than a year since the bottom in 2020, so base effects are not in consideration. What we do have to look forward to in 2022 is the dropping of all restrictions at the end of February 2022 and the full reopening of the economy.
Last night I was looking for a lower swing low after the market structure was swept to the upside, taking the liquidity above. The fake breakout usually sees price come back into the middle of the range, but we saw in the overnight session was a break of market structure to the downside. I think we get a rally now back towards the top of the range, but I am looking for US dollar strength to kick in and the GBPUSD to come down and test some swing lows.
Retail traders have finally turned bullish on the EURUSD as seen in the ActivTrader sentiment indicator. Yesterday they were 60% bullish and we needed to see them flip before the change in momentum occurred.
The EURUSD took out the double top at 1.14800 and has now removed the sell-side liquidity at 1.13800. The price action that occurred on the 3rd Feb was very bullish and has left an imbalance between 1.12800 and 1.13800, so there is a high probability we see the EURUSD 100-pips lower. My target has always been a test of the 1.13000 as that is where most trades have taken place this year.
The German inflation rate in January was 4.9%, meeting market expectations, according to a report released by the Federal Statistical Office on Friday. Monthly inflation also met market expectations of 0.4%. Coronavirus-related challenges like supply chain bottlenecks and high energy prices continue to negatively impact.