Two trades to watch: EUR/GBP, S&P500

EUR/GBP falls as the UK economy proves to be resilient, contracting less than forecast in December. S&P 500 extends declines after US CPI hit 7.5% and bets rise of a 50 basis point rate hike in March

Charts (3)

EUR/GBP falls as Omicron hit not as bad as feared

The Pound is strengthening after data revealed that the UK economy was more resilient than expected at the end of last year. UK GDP contracted just -0.2% in December, better than the -0.5% contraction forecast. On a quarterly basis GDP rose 1%, slightly off the 1.1% forecast.

The Omicron hit has proved to be much more contained that feared. Strong economic growth gives the BoE room to hike rates to tame surging inflation.

The euro is coming under pressure, partly owing to the rally in the USD following the hotter than expected inflation print. There were no surprises from German inflation which slowed to 4.9% in January from 5.3%. However, PPI rose to 16.2% suggesting that CPI could still run hotter.

Where next for EUR/GBP?

EUR/GBP failed to meaningfully break above the 100 sma resistance and rebounded lower. The price falling below the 50 sma, combined with the receding bullish bias on the MACD points to further losses.

Sellers will look for a move below 0.84 round number to attack 0.8374 January 18 high and 0.8360 February 1 high.

Buyers will look for a move above 0.8450 the 100 sma to cement further gains towards 0.8478 the 2022 high.

EURGBP chart

S&P 500 extends decline, tests 200 sma

The S&P 500 slumped yesterday following the 7.5%, hotter than forecast US inflation print, and the futures are heading lower again today.

St Louis Federal Reserve President James Bullard said that the data had turned him more hawkish and that he wants to see rate 100 basis points higher by July 1. His comments further fueled bets of a 50-basis points rate hike in March.

According to the CME Fed watch tool, there is a 94% probability of a 50-basis point rate hike in March.

US 10-year treasury yields shot over 2% hurting demand for stocks. Yields have eased slightly taking allowing futures to rise from sessions lows.

Where next for the S&P500?

The S&P 500 failed to move above the 100 sma, falling sharply lower, the bearish engulfing candle and the receding bullish bias on the MACD indicating further losses could be coming.

The 200 sma is offering support sellers will need to take out this support around 4450 and the Feb low for sellers to gain traction towards 440-0 round number.

Buyers will be looking for a move over 4500 round number to attack resistance at 4590 the 100 sma. A move above here would be a significant bullish sign.

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