Weaker than expected U.K. CPI triggered a sharp drop for the pound across the board.
Can Cable sustain the move past this support zone?
Before moving on, ICYMI, yesterday’s watchlist checked out CAD/JPY’s pop higher after the BOJ decision. Be sure to check out if it’s still a good play!
And now for the headlines that rocked the markets in the last trading sessions:
Fresh Market Headlines & Economic Data:
Canadian headline CPI rose 0.1% m/m vs. estimated 0.1% dip and earlier 0.1% gain in Nov
U.S. building permits up by 1.46M in November, following earlier 1.50M gain, housing starts rose from 1.36M to 1.56M
RBNZ Governor Orr says that high interest rates are restricting spending and that central bank is assessing subdued GDP figures
New Zealand GDT auction showed 2.3% increase in dairy prices, following earlier 1.4% gain
PBOC kept 1-year and 5-year prime loan rates on hold at 3.45% and 4.20% respectively for the fourth consecutive month
German GfK consumer climate index improved from -27.6 to -25.1 vs. -26.9 forecast in December, reflecting weaker pessimism as income expectations rose
U.K. headline CPI tumbled from 4.6% y/y to 3.9% vs. 4.3% forecast, core CPI down from 5.7% y/y to 5.1% vs. 5.6% forecast in November
Price Action News
Overlay of GBP vs. Major Currencies Chart by TradingView
Sterling pairs were already on the move early in the Asian trading session, as market players likely started placing bets for a downbeat U.K. inflation release.
Analysts were already expecting a drop from 4.6% to 4.3% year-over-year for the headline CPI, but the actual figure posted an even sharper fall to 3.9% in November. This caused a huge drop for GBP across the board, particularly against commodity currencies and the yen.
Prior to this, the PBoC opted to keep monetary policy unchanged, maintaining prime loan rates at current levels for the fourth month in a row and providing some support for risk assets.
Upcoming Potential Catalysts on the Economic Calendar:
Eurozone consumer confidence index at 3:00 pm GMT
U.S. CB consumer confidence index at 3:00 pm GMT
U.S. existing home sales at 3:00 pm GMT
EIA crude oil inventories at 3:30 pm GMT
Use our new Currency Heat Map to quickly see a visual overview of the forex market’s price action! ️
GBP/USD 15-min Forex Chart by TV
It looks like the BOE might be forced to sit on its hands for much longer or even consider cutting rates!
Inflation turned out weaker than expected for the U.K. economy in November, as the headline CPI fell from 4.6% to 3.9% year-over-year.
This caused GBP/USD to tumble more than 50 pips down to S1 (1.2660) which appears to be holding as a floor right around this week’s lows. A break below this could set off a move to the next support zone at S2 (1.2580) or even S3 (1.2530).
On the other hand, if pound bulls charge around these levels, Cable might make its way back up to the pivot point level (1.2710) or R1 (1.2780) at the previous week highs.
Note that the U.S. CB consumer confidence index is up for release in the next trading session, so dollar pairs could be treated to a fresh round of volatility. Good luck and good trading!
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