Two trades to watch: EUR/GBP, Gold
Fiona Cincotta January 18, 2023 8:07 AM
EUR/GBP falls on sticky UK inflation. Gold falls ahead of US PPI inflation & retail sales.
EUR/GBP falls on sticky UK inflation
EUR/GBP is falling, extending losses from the previous session. The pound trades higher after UK inflation cooled in line with forecasts to 10.5% YoY, down from 10.7%.
However, core inflation, which strips out more volatile items such as food and fuel remained unchanged at 6.3%, defying forecasts of a decline to 6.2%.
The data comes after UK jobs data yesterday, which showed that wage growth jumped at the fastest pace in 20 years and unemployment remained low.
The tight labour market and stubbornly high inflation point to the BoE hiking rates aggressively again in the upcoming meeting, which is lifting the pound.
Suggestions that the BoE could be nearing the end of the hiking cycle seem misplaced given the recent data points.
Meanwhile, the euro came under pressure amid rumors that the ECB will look to slow the pace of rate hikes after the February meeting.
Looking ahead, eurozone inflation is expected to confirm the preliminary December print of 9.2% YoY from 10.1% in November.
Losses in the euro are being limited by easing recession fears. Yesterday German ZEW economic sentiment rose to levels prior to the Ukraine war. German Chancellor Scholz has also said that he believes Germany will avoid a recession.
Where next for EURGBP?
After running into resistance at 0.8895 the price has rebounded lower and is testing support at 0.8775, the 2023 low and the multi-month rising trendline support.
While the RSI has slipped back to neutral, the bearish crossover on the MACD keeps sellers hopeful of further losses.
A break below 0.8775, exposes the 50 sma at 0.8730. A break below here opens the door towards 0.8645 the early December high.
On the flip side, buyers could look for a rise back above 0.8820 the November high to bring 0.8895 back into focus.
Gold falls ahead of US PPI inflation & retail sales
Gold is falling for a third straight session, declining $25 from a 9 month high on the back of a firmer USD.
The greenback has been posting gains in recent days despite falling treasury yields as it picks up from a 7-month nadir.
While the US economic calendar has been quiet so far this week, that is set to change with the release of US PPI inflation, which is set to cool to 6.5% YoY in December, down from 7.5% in November.
US retail sales are also due and are expected to show that sales declined again in December -0.8% MoM, after falling -0.6% in November, the largest decline in retail sales in almost a year.
The data points are expected to provide evidence supporting the view that the Federal Reserve will slow down its pace of rate hikes owing to growing risks to consumer demand.
According to the CME FedWatch tool the market is pricing in a 95% probability of a 25 basis point rate hike in February and a 78% probability of another 25 basis point hike in March.
Where next for Gold?
Gold has extended its rebound from 1616, the November low, rising, above its 200 sma for the first time in 7 months, before running into resistance at 1929.
The 50 sma has crossed above the 200 sma in a golden cross bullish signal. However, the RSI is teetering on overbought territory, which warrants caution. A move lower or some consolidation could be on the cards.
Buyers would need to rise above 1929 to create a higher high and extend the bullish rise towards 1965 the March high.
Meanwhile, sellers would look for a move below 1870 the rising trendline support to open the door to 1830.
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