GBP/USD: Long for 1.2700, Yellen in the limelight
Macroeconomic overview
British consumer prices rose 1.8% yoy, slightly below expectations for a 1.9% rise. The Bank of England forecast earlier this month that inflation will rise above 2.7% in around a year's time as Britain's vote to leave the European Union pushes up the cost of imports. Excluding oil prices and other volatile components such as food, core consumer price inflation held steady at 1.6%, confounding market expectations for a rise to 1.8%. Retail price inflation also rose to its highest since June 2014 at 2.6%.
Data on factory gate prices underscored the inflationary pressures in the pipeline. Output prices rose 3.5% yoy, the biggest increase since January 2012. Prices paid by factories for fuel and materials rose at an annual rate of 20.5% in January, the sharpest rise since September 2008.
The pound's fall - it is down about 17% against the USD and 11% against the EUR since the June 2016 referendum - is starting to hit the spending power of consumers, who have helped the British economy to grow since the vote.
Last week BoE rate-setter Kristin Forbes said she was beginning to become uncomfortable with the central bank's commitment to a neutral policy stance, arguing instead that interest rates could need to rise soon if price pressures continue to build.
The Office for National Statistics also released figures for December house prices, which showed an 7.2% annual rise across the UK as a whole compared with a 6.1% increase in November.
The GBP/USD fell back below 1.2500 after inflation data for January came in below forecast, adding to a handful of worse-than-expected economic numbers over the past couple of weeks.
Brexit minister David Davis says the government is on course to meet its end-March deadline to launch the formal divorce procedure from the European Union but he does not expect it to happen at a March 9 EU summit.
Fed Chair Janet Yellen’s testimony will be the main event today. In her testimony before the US Congress, Yellen will likely reaffirm her prudent stance. She is likely to reiterate the outlook for a few gradual hikes this year as the economy is close to the Fed’s goals. But the timing still depends on the data out in the next few months.
This will probably limit the impact of the new round of US data releases, including CPI (today) and retail sales data, as markets will conclude that even strong numbers will not trigger a Fed response. We expect the next move will occur only in June.
Technical analysis
The short-term outlook is slightly bullish. The GBP/USD remains above the Ichi cloud top (1.2441) and 100-dma (1.2430), which suggest that the bias stays with the bulls. The resistance is at last week’s 1.2582 peak, then 1.2621 (76.4% fibo of February fall).
Trading strategy
We got long today at 1.2460 for 1.2700.
GrowthAces.com - Daily Forex Trading Strategies
Macroeconomic overview
British consumer prices rose 1.8% yoy, slightly below expectations for a 1.9% rise. The Bank of England forecast earlier this month that inflation will rise above 2.7% in around a year's time as Britain's vote to leave the European Union pushes up the cost of imports. Excluding oil prices and other volatile components such as food, core consumer price inflation held steady at 1.6%, confounding market expectations for a rise to 1.8%. Retail price inflation also rose to its highest since June 2014 at 2.6%.
Data on factory gate prices underscored the inflationary pressures in the pipeline. Output prices rose 3.5% yoy, the biggest increase since January 2012. Prices paid by factories for fuel and materials rose at an annual rate of 20.5% in January, the sharpest rise since September 2008.
The pound's fall - it is down about 17% against the USD and 11% against the EUR since the June 2016 referendum - is starting to hit the spending power of consumers, who have helped the British economy to grow since the vote.
Last week BoE rate-setter Kristin Forbes said she was beginning to become uncomfortable with the central bank's commitment to a neutral policy stance, arguing instead that interest rates could need to rise soon if price pressures continue to build.
The Office for National Statistics also released figures for December house prices, which showed an 7.2% annual rise across the UK as a whole compared with a 6.1% increase in November.
The GBP/USD fell back below 1.2500 after inflation data for January came in below forecast, adding to a handful of worse-than-expected economic numbers over the past couple of weeks.
Brexit minister David Davis says the government is on course to meet its end-March deadline to launch the formal divorce procedure from the European Union but he does not expect it to happen at a March 9 EU summit.
Fed Chair Janet Yellen’s testimony will be the main event today. In her testimony before the US Congress, Yellen will likely reaffirm her prudent stance. She is likely to reiterate the outlook for a few gradual hikes this year as the economy is close to the Fed’s goals. But the timing still depends on the data out in the next few months.
This will probably limit the impact of the new round of US data releases, including CPI (today) and retail sales data, as markets will conclude that even strong numbers will not trigger a Fed response. We expect the next move will occur only in June.
Technical analysis
The short-term outlook is slightly bullish. The GBP/USD remains above the Ichi cloud top (1.2441) and 100-dma (1.2430), which suggest that the bias stays with the bulls. The resistance is at last week’s 1.2582 peak, then 1.2621 (76.4% fibo of February fall).
Trading strategy
We got long today at 1.2460 for 1.2700.
GrowthAces.com - Daily Forex Trading Strategies