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Focus On U.S. CPI

Dear Traders,

Technically speaking, we got what we were looking for: A breakout of the cable’s consolidated price range. The GBP/USD broke below 1.3230 after the pair failed to overcome the 1.3285-barrier. The downward movement was mainly due to a strengthening U.S. dollar.

Also, the EUR/USD fell victim to a new round of dollar strength and declined below 1.17. We see a current support at 1.1650 which could stop sellers from entering into new short positions, at least for now. A short-term resistance is, however seen at 1.1740, from where sellers could take the opportunity to sell euros at higher levels.

Today we have the U.S. Consumer Price Index scheduled for release at 12:30 UTC. The headline CPI is due in at 2.9 percent from 2.8 percent which could help boosting the dollar rally. However, a miss could have a bigger impact on the dollar rather than an outcome in line with expectations.

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GBP/USD: Preparing For Potential Short Squeeze Scenario

Dear Traders,

After the absence of a major driver or catalyst in the markets, today is loaded with market-worthy data and thus, traders are bracing for higher volatility in most major currency pairs. Top event risk will be the Bank of England rate decision with the BoE’s Quarterly Inflation Report. While the BoE is unlikely to raise interest rates at this meeting, it is the inflation report and the press conference with BoE Governor Carney that garner most attention.

The Bank of England will announce its rate decision alongside the release of the central bank’s inflation report at 11:00 UTC. The press conference will follow 30 minutes later.

Following the complete U-turn in rate hike expectations out of the BoE, the central bank has little choice but to signal a rate hike in August to maintain the bank’s credibility. The risk is therefore tilted to the upside with a potential short squeeze scenario in the GBP/USD. If the BoE, however, disappoint in terms of rate hike speculation deviating from their hawkish bias, the pound will further fall.

Another, no less important, report will be the April Consumer Inflation Report (CPI) from the U.S., which is due shortly after the BoE’s decision at 12:30 UTC. The Federal Reserve debate over a fourth rate hike in 2018 is still ongoing, which is why inflation figures could affect current rate hike speculation. Thus, a surprise in CPI data could have a major impact on the dollar, paving the way for some profit-taking or maybe an extension of the dollar rally.

Let’s take a look at the technical picture:

GBP/USD

The cable traded consolidated between roughly 1.36 and 1.35. The short-term bias is slightly bullish, with the focus now being on an uptrend channel between 1.3615 and 1.3515.  A break above 1.3810 could open the door for accelerated bullish momentum towards 1.40. On the bottom side, the 1.35-support remains a crucial price barrier. If the pound drops below 1.3480 we may see a drift towards 1.3330.

EUR/USD: The euro still trades around the falling trendline of its recent downtrend channel. As mentioned in yesterday’s analysis, the 1.19-barrier could prove an important hurdle for euro bulls now. A break above 1.1910 may encourage bulls for a test of 1.1950. Today’s price action will, however, hinge on the appetite for USD, which is why we focus on U.S. CPI data.

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U.S. CPI Data In Focus Today

Dear Traders,

The British pound ended the trading day in positive territory after news emerged that a Brexit transition deal could be announced in the coming days. The transition deal would give the U.K. two years beyond the March 2019 exit to implement new laws and regulations outside the EU bloc.

Sterling traders should keep an eye on the U.K. Spring Budget statement today at 11:30 UTC. U.K. Chancellor Philip Hammond is likely to reveal an improvement in U.K. public finances. An upbeat tone could therefore spur bullish momentum in the GBP/USD.

Today, the U.S. Consumer Price Index is due at 12:30 UTC and this inflation indicator could shift Fed rate forecasts. A March 21 rate hike is almost certain but the focus will be on the debate between 3 and 4 hikes throughout this year. How the dollar will trade within the next hours could therefore hinge on today’s inflation numbers.

The euro ended the trading day virtually unchanged against the dollar while profitable trading opportunities were absent. As long as the euro remains above 1.23 we see the chances in favor of the bulls.

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U.S. Inflation Print To Impact The Dollar’s Price Action

Dear Traders,

We got what we were looking for in the GBP/USD: A breakout of the cable’s narrow trading range even though that breakout has proved not as strong as we had hoped for. Sterling bulls attempted to push the pound above 1.39 but bullish momentum was somewhat muted following the U.K. January inflation print which came in at 3 percent, better than the 2.9 percent forecast ahead of the release. Overall, rising prices and economic fundamentals create conditions for a stronger currency even if Brexit risks are the main concern for investors.

Technically speaking, we now expect the GBP/USD to trade with a slight upward tilt heading towards 1.3970/80. If the pound is able to take out the 1.40-hurdle again, we will focus on higher targets around 1.4160. A current support is seen around 1.3740.

The EUR/USD broke above 1.2340 and is currently heading towards 1.24. If it breaks significantly above 1.2410, we may see another leg up towards 1.2470. As long as 1.23 holds, chances are in favor of the bulls. Euro bears should better wait for prices below 1.2280.

Today’s focus turns to the U.S. inflation figures due at 13:30 UTC. The U.S. Consumer price index probably increased at a moderate pace in January. Investors will pay particular attention to that report, which is why potential surprises in the inflation print could have a significant impact on the dollar.

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Will Yellen’s Final Move Depreciate The USD?

Dear Traders,

It’s decision day at the Federal Reserve and what makes this final policy decision of the year a significant meeting is not the anticipated rate hike, but the monetary policy outlook for 2018. While the market is certain of a third 2017 hike, the focus will turn to forecasts for the pacing through 2018. We will therefore keep an eye on the dot-plot in order to shape expectations for next year’s rate hike path. If the Summary of Economic Projections (SEP) projects another three or possibly even four rate hikes ahead, the dollar will further rally. However, it is very unlikely that the Fed surprises the market and accelerates its pace. Hence, there is a risk of disappointment today, which could lead to a sell-off in the dollar. We recommend preparing for heightened volatility during the entire North American trading session, while most price action will take place around the FOMC decision and press conference, as well as the CPI reading that will be due before the rate decision.

For Fed Chair Janet Yellen it will be her final quarterly press conference before she steps down in February. It is therefore unlikely that she will signal any new prospects on the Fed’s guidance.

13:30 USD Consumer Price Index (CPI)

19:00 USD FOMC Rate Decision

19:30 USD Yellen Holds Press Conference

(Time zone UTC)

Yesterday’s price performance in both EUR/USD and GBP/USD was not to our liking as both currency pairs failed to pick a clear direction despite the broad-based strength in the USD. Technically speaking, the picture has not changed.

GBP/USD: The cable refrained from a break below 1.33 and we currently focus on a price range between 1.3450 and 1.3220. Yesterday’s better-than-expected U.K. inflation data failed to lift up the currency but if investors take profit on dollar positions today, we could finally see some corrective movements driving the pair higher before the holiday liquidity drain.  

EUR/USD: The euro remained well above 1.17 and as long as there is no clear break below 1.1680 the euro could head for another test of 1.1790. Below 1.1680 we focus on lower targets at 1.1640 and 1.16.

We wish you good trades for today.

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British Pound Experiences Roller Coaster Ride On Soft Brexit Speculation

Dear Traders,

The biggest story in the market on Thursday was the British pound which experienced a roller coaster ride. The GBP/USD initially dropped to a low of 1.3121 from where a sharp reversal started, quickly pushing the pound towards 1.33. The reason for the sharp price rise was a report, saying that Europe’s top negotiator may offer the U.K. a two-year Brexit transition period to stay in the single market. Any signs in favor of a soft Brexit are generally positive for the pound, while a hard Brexit is seen as the worst scenario for the U.K. economy. Until only recently the official line had been that there was no major progress in the Brexit discussions.

While Brexit remains the main driver of the pound, traders should keep an eye on the technical picture. GBP/USD is still below 1.33 and once that hurdle is significantly taken out, we could see the pound further rising towards 1.3350 and 1.3450. Sterling bears should however wait for prices below 1.3150.

 

The euro traded range-bound between 1.1870 and 1.1825. ECB President Draghi’s speech failed to have an impact on the euro’s price action. We now expect the EUR/USD to trade between 1.1930 and 1.1830. Sellers should keep an eye on prices below 1.1780 that could lead to further losses towards 1.1730.

Most attention will be paid to the U.S. Consumer Price Report scheduled for release at 12:30 UTC today. Around the release time of this report we expect higher volatility in all USD crosses.

We wish you good trades and a wonderful weekend.

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Any and all liability of the author is excluded.

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All Eyes On U.S. CPI Data

Dear Traders,

The FX market on Thursday can be described as rather muted. As expected, GBP/USD traded higher but the bullish momentum was limited to a high of 1.2955. The cable now needs to overcome the 1.30-barrier in order to encourage sterling bulls for a test of 1.3020/45 . EUR/USD traders however, sold euros below 1.1420 but yesterday’s downward movement was limited to a low of 1.1370. A break below 1.1380 has thus failed to ignite bearish momentum toward 1.13.

Today might be more interesting for traders as U.S. Consumer Inflation due at 12:30 UTC will be closely scrutinized. Yellen believes that the current downtrend in inflation will be temporary and if she is right and we see upbeat inflation figures, the greenback will rise. However, there is a risk that inflation could slow again in June and this would increase the pressure on the U.S. dollar. If the forecast is correct and inflation slowed to 1.7 percent, it is the fourth consecutive month of deceleration and the weakest reading since November 2016.

Let’s be surprised while we prepare for higher volatility around the release of CPI data.

We wish you good trades and a beautiful weekend.

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BoE Disappoints, Pound Falls, What’s Next?

Dear Traders,

The Bank of England disappointed investors that have been buying the British pound ahead of the Inflation report as the medium-term inflation forecast came in lower than expected. Traders who had hoped for a hawkish tone or more than one dissent calling for a rate hike in the BoE’s monetary policy statement were disappointed. Officials cut their economic growth forecasts this year to 1.9 percent from 2 percent. While the BoE sees a slightly weaker path in the medium-term it expects inflation to be accelerating again by the end of 2019. To sum up, it can be said that the central bank is moving more slowly with a potential rate hike not being in the cards until 2019.

The pound dropped in response to the weaker forecasts but the slide came to a halt at around 1.2850. If sterling climbs back above 1.29 and is able to hold above that level we shift our focus back to a potential test of the 1.30-resistance level.

Today, traders will pay close attention to important U.S. economic reports such as Retail Sales and Consumer Prices, both reports are due for release at 12:30 UTC. Investors are looking for a positive reading, confirming that the U.S. economy is picking up the pace enough to withstand higher interest rates. However, a disappointment in U.S. data could send the dollar lower, providing the basis for fresh upswings in the cable and euro.

Last but not least, University of Michigan Confidence is due for release at 14:00 UTC.

We wish you good trades and a wonderful weekend.

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Wild Wednesday: Anything Is Possible, Even A Disappointment Despite Fed Tightening

Dear Traders,

It’s Fed-decision day and the waiting finally comes to an end. After several days of range-bound conditions and low volatility, traders now prepare for volatile swings and trend-setting movements. The probability of a Federal Reserve rate hike is completely priced in while the U.S. dollar shrugged off the bullish bias. The greenback’s reluctance to commit to further tightening suggests that dollar bulls might be unimpressed by the FOMC policy announcement.

The Fed’s monetary policy decision will be announced at 18:00 UTC but the impact on the dollar could be muted as traders appear to be well prepared for a March rate hike. The spotlight however, will be on the following press conference with Fed Chair Janet Yellen and revised rate path projections. Economists expect the path for rates to include three hikes this year and in case of a steeper tightening path, the dollar will rally. However, there is a greater potential for disappointment and if Yellen sounds more balanced, preferring a wait-and-see mode, the dollar will be vulnerable to losses.

All eyes will be on the FOMC announcement but before that major risk event, traders should also pay attention to U.S. Consumer Prices, scheduled for release at 12:30 UTC.

Apart from the Fed decision, elections in the Netherlands will draw the focus back on the euro’s resilience. The Dutch vote is the biggest test of the strength and resilience of the populist surge this year. The euro could therefore tend to fluctuate sharply towards the end of the American trading session.

EUR/USD

From a technical perspective, we expect bearish momentum to accelerate if the euro falls below 1.0570. Lower targets could then be at 1.05 and 1.0380. A short-term resistance is however seen at around 1.0650. If the euro significantly breaks through that resistance-level we may see further gains towards 1.07 and 1.0790.

 

GBP/USD

Today’s short squeeze in the British pound was an impressive reminder that there is still potential for exaggerated movements. The pound surged to a high of 1.2257, which is considered a current resistance-zone in the cable. Above 1.2260 we may see further gains toward 1.23 but everything is possible today and the price action will also hinge on the appetite for USD. We generally anticipate the cable to remain within a range between 1.24 and 1.21 for the time being. On the bottom side, the pound will need to break below 1.2080 in order to invigorate fresh bearish momentum.

The U.K. employment report is due for release at 9:30 UTC and could have a minor impact on the pound.

 

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We wish you good trades and many pips!

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USD Receives Boost On Hawkish Yellen Comments

Dear Traders,

The U.S. dollar was bolstered by hawkish comments from Fed Chair Janet Yellen on the first day of her testimony. While Yellen did not reveal much new information, she was surprisingly hawkish, saying that “waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets”. In other words, the pace of interest rate hikes could accelerate, still leaving the door open for a hike in March. Market participants will now shift their focus to the U.S. Consumer Price data with the intention to evaluate the need for faster rate normalization.

The greenback traded higher against the euro and British pound and while we generally expect further gains in the dollar, traders should also prepare for some pullbacks in short-term time frames.

The euro found some halt at 1.0560 and it may now tend to correct recent losses towards 1.0615 and possibly even 1.0630. Today’s price action will, however, again hinge on the demand for dollars. In case of better-than-expected CPI data the euro could extend its losses towards 1.0540 and 1.05.

The British pound dropped towards 1.2440 after the U.K. Consumer Price Index failed to meet market expectations. Signs of weaker price growth may encourage the Bank of England to maintain a neutral monetary policy. From a technical perspective, the cable is still confined within a sideways trading range between 1.2550/85 and 1.2440. A break below 1.2440 may prompt sterling bears to sell sterling towards 1.2350 and further 1.2270. On the topside, the pound will need to break through 1.2530 and 1.2560 in order to invigorate fresh bullish momentum.

We will keep an eye on the U.K. Labor Market report, due for release at 9:30 UTC, which could affect the price action in the GBP/USD, provided that there is any surprise.

Higher volatility is expected during the U.S. session with Consumer Prices and Advance Retail Sales scheduled for release at 13:30 UTC.

Fed Chair Yellen will testify before the House Financial Services Committee at 15:00 UTC.

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We wish you good trades and many pips!

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