The GBP/USD pair remained stuck in the range of 1.5180-1.5230 on Monday as the markets remained resilient to the Paris terror attacked. Gold prices did tick higher and so did the Japanese Yen in Asia, however, the safe haven gains were quickly reversed by the time European session was underway. The economic calendar was empty, leaving the GBP/USD pair at the mercy of the overall demand for the US dollars.
Eyes UK CPI
The October UK inflation numbers are due for release today. The consensus estimate calls for a 0.1% m/m rebound in October, compared to September’s drop 0.1%. The annualised number is seen dropping another 0.1%, while core inflation is seen rising 1.0%.
The Bank of England revised its inflation forecasts lower in its latest quarterly inflation report and also stated the likelihood of the downside risks to inflation in the short-term. However, the headline figure could not matter much so long as the month-on-month number stays in the positive. The main focus would be on the core numbers. Moreover, central banks across the advanced world are coming to terms with the fact that their aggressive policies are unlikely to negate the impact of lower energy (oil) prices and thus markets may not sell sterling in case the headline figure falls on weaker energy prices. But, a lower than expected core figure could drive Sterling lower to 1.51 levels. On the other side an uptick in core could see sterling re-test 1.5248.
Technicals – Bearish break from sideways channel
Sterling’s break from the rising channel on the hourly chart, followed by a sideways action on Monday and a bearish break from the same has opened doors for a re-test of 1.5138 (23.6% of Nov first week’s drop). The pair also faced rejection at 1.5206 (38.2% of Nov first week’s drop). At the moment, the pair is hovering around the hourly 200-MA (at 1.5176), which has worked as a strong support since Monday’s European session. Repeated failure to break/sustain below hourly 200 could see the spot re-test 1.5206, above which the pair could re-test 1.5248 (50% of Apr-Jun rally).
EUR/USD – Bears look tired, need correction
The EUR/USD pair was rejected at 1.0758 (76.4% of Mar-Aug rally) followed by a bearish break below 1.0674 (Nov 10 low). The spot currently trades around 1.0660 levels. The common currency remained resilient on Monday despite the Pairs terror attacks. However, the terror attacks are widely expected to impact the consumer/business confidence in France. Add to his, the German slowdown and the odds of more ECB QE in December increase.
Zew survey could trigger a correction
The German Zew survey the economic sentiment improved sharply in November, despite increasing signs of a slowdown in the EZ’s largest and strongest economy. An upbeat German and Eurozone Zew survey number could trigger a technical correction in the pair ahead of the US CPI figure. The monthly inflation number in the US could turn out to be non-event as the markets believe the December lift off is a done deal.
Treasuries give a green signal for Fed liftoff
Even the treasury market volatility has decreased to its lowest level this year. The Bank of America Merrill Lynch MOVE Index, which measures price swings in US debt, fell to 67.69 basis points on Monday, the least since Dec. 26.
This is a sign that the uncertainty over the direction of the Fed policy no longer exists and that the markets are prepared for the December liftoff. Overall, the USD rally could continue for next three weeks and the doors are opened for the pair to revisit its yearly low of 1.0465. However, the technicals show a quick technical correction could be seen before the sell-off resumes.
Technicals – Correction ahead
Euro’s break below 1.0674 (Nov 10 low) after having stuck in a range for more than a week has not led to a sharp sell-off so far, which indicates the bears could be exhausted by a recent 900-pip fall. The RSI on the hourly and daily chart is hovering around oversold territory. Consequently, quick fire technical correction to 1.0761 (hourly 200-MA) could be seen. A break above the same is unlikely. On the other side, a failure to sustain above 1.0660 would open doors for a sell-off to 1.06 – 1.0568 (Apr 1st week low).
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