GBP/USD declined during the early European morning

GBP/USD

• The dollar traded higher against most of it G10 counterparts during the European morning Tuesday. It underperformed only against NOK, while it traded virtually unchanged against EUR, CHF and JPY. The main losers today were AUD, NZD, and GBP.

• The UK avoided slipping into deflation in March as the nation’s headline CPI rate remained unchanged at 0.0% yoy, as was anticipated. However, core inflation slowed to +1.0% yoy from +1.2% yoy previously, the lowest core rate in nine years. Expectations were for the core rate to remain unchanged as well. GBP/USD tumbled on the news as the decline in the core rate suggest low inflation is not merely a matter of low oil prices and therefore keeps alive the BoE’s concerns that Britain could slip into deflation. It therefore pushes further back expectations of a rate hike. GBP/JPY fell below the 175.50 barrier that was testing in early morning. This opens the way for the 174.00 territory, in my view.

• In Sweden, the CPI accelerated less than anticipated, to +0.2% yoy from +0.1% yoy (forecast = +0.3% yoy). Although inflation is moving in the right direction, today’ data hit the Swedish currency nonetheless. USD/SEK surged around 480 pips at the release, but gave back a large portion of these gains in the following hours. The market overwhelmingly expects that the Riksbank will remain on hold at its next policy meeting on the 29th of April and wait to see if the positive effects of its recent easing measures continue before cutting rates again. Nonetheless, bearing in mind that the Bank doesn’t like a strong Krona and that the dollar has resumed its uptrend, I would stay bullish on USD/SEK. I still expect the pair to challenge the 9.0000 zone in the near term.

• GBP/USD declined during the early European morning following the UK CPI data and after hitting resistance at 1.4690 (R1). The rate printed a lower high near that barrier and this keeps the short-term bias negative, in my view. Later in the day, the US retail sales are expected to have rebounded in March. This could encourage the bears to drive the rate lower, perhaps below yesterday’s low of 1.4560 (S1). Something like that could open the way towards the psychological zone of 1.4500 (S2), a support also marked by the low of the 11th of June 2010. Zooming out to the daily chart, I see that our daily oscillators still reveal downside momentum. The RSI stays below its 50 line and points somewhat down, while the MACD, already negative, has topped and fallen below its trigger line. The overall trend is negative as well. The break below 1.4750 (R2) signaled the downside exit of a sideways range and triggered the resumption of the larger downtrend, in my opinion.

• Support: 1.4565 (S1), 1.4500 (S2), 1.4400 (S3).

• Resistance: 1.4690 (R1), 1.4750(R2), 1.4800 (R3).