It looks like the neat descending channel on the DXY is still working after the dollar yesterday (Tuesday) gave back a lot of its gains from Monday.
However, the USD index is now resurfacing back towards its 21-day simple moving average (SMA), with this technical indicator having guided this dollar index lower in recent sessions.
The greenback has printed a series of lower highs and lower lows since early March when the index topped out above 105.
Prices dipped below 101 on a couple of occasions last week, almost matching the February low at 100.68.
This will be strong support for another move lower if the world’s premier reserve currency sticks in its bear channel.
Money markets are still gunning for one last 25bp rate hike at the FOMC May rate decision.
However, this is seen as the peak in rates with rate cuts still priced in for the end of the year, even if those bets have been reined in recently.
A host of Fed speakers will been on the wires through till the end of the week before the blackout period ahead of the Fed meeting. That means this is their last chance to offer guidance to the markets.
The mid-month UK data dump this week means important data points for the Bank of England rate decision at its meeting in the second week of May.
Markets have fully priced in a 25bps hike, which would take the base rate to 4.5%, the highest since September 2008. Yesterday’s labour market figures cemented that pricing with strong wage growth confounding economists who thought earnings were moderating.
Today’s headline UK inflation was forecast to fall into single digits for the first time since August last year.
But the headline CPI hit 10.1% in March beating the estimates of 9.8%.
The monthly figure was also worryingly strong at 0.8%. This comes after the shock acceleration to 10.4% in February.
The core number, which strips out volatile food, energy, tobacco, and alcohol prices, also beat analyst forecasts, rising 6.2% y/y and 0.9% m/m.
The BoE is looking at the “persistence” of prices with services inflation a key number for the MPC as it reflects longer-term trends.
What’s next for GBPUSD?
After today’s CPI release, Friday brings retail sales and PMIs.
The former is expected to slow after a solid retail rivalry to kick off the year. The flash survey composite data may slip but remain above the boom/bust 50 mark.
Sterling hit a multi-month high last week at 1.25468.
But disappointingly for the bulls, GBP/USD couldn’t close on a weekly basis above the big, psychological level of 1.25.
In fact, the major closed below the previous year-to-date top and resistance at the late January at 1.2448. The bid seen yesterday in cable steadied the major above 1.24.
However, bulls who’ve already been emboldened by today’s CPI beat will be hoping for more positive catalysts before the weekend.
The calendar is fairly light Stateside with Monday’s ISM services PMI the only real top-tier data, offering little scheduled “spark” on the USD side of the equation this week.
5 June 09:59
China’s weaker-than-expected non-manufacturing PMI, released just hours ago, have sparked a flight to safety.
31 May 12:17
Although the US dollar index is now easing away from overbought conditions, it’s still trading around a two-month high.
29 May 10:15
The drama of the fiscal situation in the world’s biggest economy continues to be front and centre in the minds of investors.
24 May 08:30
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