Will key UK economic data break the EUR/GBP trading range?
James Chen, CMT May 15, 2017 1:07 PM
Also surging on Monday was the euro, only slightly more than a week after Emmanuel Macron won the French presidential election. The shared currency has continued its recovery run from late last week against the US dollar, Japanese yen, and British pound, after having initially dipped in the aftermath of Macron’s win.
As for the pound, focus this week is shifting towards the UK currency as key data releases, especially regarding inflation, will take front and center in an otherwise relatively light week for major economic data. In the run-up to these releases, the pound has remained reasonably well-supported in its recent rise against the dollar, euro, and yen.
Tuesday’s UK Consumer Price Index (CPI) data will be a key test as to whether UK inflation is continuing to trend higher. The previous two months saw higher-than-expected inflation increases of 2.3% on a year-over-year basis. Markets are expecting an even higher y/y CPI reading of 2.6% for April. On Wednesday, key UK employment data will be released, including the unemployment rate, claimant count change, and the average earnings index. This latter data point is also a key indicator of consumer inflation, and the previous month saw a higher than expected increase in this earnings index. Consensus forecasts point to a potential 2.4% increase in average earnings on Wednesday. And finally, Thursday brings UK retail sales numbers for April, which will be watched closely, as the March data was a deep disappointment at -1.8%. Markets are expecting around a +1.2% increase in April retail sales.
Ahead of these key UK data releases, EUR/GBP has continued to consolidate in a tight trading range, as it has for more than a month now, below its key 200-day and 50-day moving averages. In mid-April, the currency pair broke down below a long-term uptrend line extending back to the late 2015 lows. Since the October highs above 0.9000, EUR/GBP has been generally falling in a medium-term downtrend. This week’s critical UK economic data could help set the tone for whether EUR/GBP continues this downtrend going forward. The generally bearish trend bias for EUR/GBP will, of course, be helped along by any UK data this week that meets or exceeds expectations. If the pair remains under its key moving averages, the clear downside target is at the major 0.8300 support level, last approached in mid-April. In the event of a further breakdown below 0.8300, a breakdown of the long-term uptrend will have been confirmed, with the next major downside target around 0.8100 support.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.