The initial post-referendum UK economic data for July was released this morning and the rest will be released later this week.
The CPI figures released, were above or in line with expectations. The YoY CPI figure rose to 0.6% in July, from 0.5% in June. The YoY Core CPI was 1.3% in July, from 1.4% in June, in line with expectations. Although the MoM CPI fell to -0.1% in July, from 0.2% in June, it was still in line with expectations. The first set of CPI figures have, to some extent, eased market concerns over the initial stage of Brexit aftermath.
If other economic figures, released this week, also show a better-than-expected results, then market confidence in the post-referendum economic outlook, will likely be lifted. Whereas, if the upcoming figures show an economic deterioration, we will likely see market concerns over the aftershocks of Brexit deepen, accompanied by raising market expectations of further stimulus measures from the BoE. As a result, it will weigh on the Sterling in the near term.
Keep an eye on the Claimant Count Change and Unemployment Rate, released on Wed 17th, also the Retail Sales (YoY and MoM) and the Core Retail Sales (YoY and MoM) released on Thursday 18th August, as they will influence the strength of the Sterling.
GBPUSD plunged to 1.2864 on 15th August, from 1.334 on 4th August, a 3.57% fall. Hitting a one-month low, since the BoE’s announcement of a rate cut, then held between the significant support zone between 1.288 and 1.290.
This morning the dollar index extended it’s weakness since Friday, as a result of the disappointing retail sales report. The index dived from 95.605 to a low of 94.695, a 0.952% fall, breaking through the previous lows of 95.18 on 12th August and 94.935 on 2nd August. The dollar has weakened across the board.
The positive CPI readings and the weakness of the dollar pushed GBPUSD up. On the 4 hourly chart, this morning GBPUSD rebounded with a long bullish candle, breaking through the resistance levels at 1.290, 1.292, 1.295, further testing the significant level at 1.30. If the dollar keeps on weakening, GBPUSD will likely break the significant resistance at 1.30 and the downtrend channel.
The resistance level is at 1.30 followed by 1.303, followed by 1.305, 1.307 and 1.310.
Downside newly formed support line is at 1.2967, followed by 1.295, 1.2930 and 1.290.
Keep an eye on the upcoming economic figures, with positive figures released, GBPUSD will likely break the 1.30 level, while lower-than-expected figures are likely pull GBPUSD back, to test the support levels.
The bullish momentum of EURGBP has been boosted since 4th August, the BoE’s rate cut, reaching the highest level since September 2013. On the 4 hourly chart, EURGBP has been oscillating in an uptrend channel since then.
This morning the upside trend line resistance at 0.8698 was broken by a long bullish candle, this was followed by a sharp retracement, falling back to the uptrend channel, as the Sterling strengthened.
Keep an eye on the upcoming UK economic figures, with positive figures released, EURGBP will likely test downside support levels, while lower-than-expected figures will likely push EURGBP up and test the trend line resistance again.
The uptrend line resistance level is at 0.870 followed by a resistance zone between 0.8710 to 0.8815.
Downside 8 EMA support line is at 0.8673 followed by trend line at 0.8655 and 20 EMA at 0.8640.