GBP/USD: Get Long For 1.5440

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GBP/USD: long at 1.5275, target 1.5440, stop-loss 1.5190, risk factor *

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GBP/USD: Negative British CPI Is An Opportunity To Get Long

(long at 1.5275)

• The Office for National Statistics said British consumer price inflation dropped to an annual rate of -0.1%, below market expectations for it to hold unchanged at zero, and along with April the lowest reading since March 1960. 

• A measure of core consumer price inflation, which strips out changes in the price of energy, food, alcohol and tobacco, held at 1.0% compared with expectations for it to rise slightly to 1.1%.

• There was a sharp split between price changes for goods, many of which rely on imports, and services, where costs are more heavily influenced by British rates of pay. Goods prices showed their biggest annual drop on record, falling by 2.4%on the year, while the rate of services inflation picked up to its fastest since October 2014.

• Factory gate prices down 1.8% yoy, as forecast and vs. -1.9% yoy in August.

• The ONS also released figures for August house price inflation, which showed a 5.2% annual rise across the United Kingdom as a whole unchanged from July.

• Unlike policymakers in the Eurozone, the Bank of England is relatively unconcerned about the risk of persistent price falls leading to deflation due to robust consumer demand and rising domestic wages.

• Another negative inflation reading in not a big surprise as recent lower oil and commodity prices had risks skewed to the negative. We used a fall in the GBP/USD after the data to get long at 1.5275. We are waiting for tomorrow’s British jobs report. We think British pay growth will likely accelerate faster than expected by consensus. Based on the ongoing tightening in the UK labor market, we expect the BoE to adopt a less dovish stance sooner than the market anticipates. Recent rises in oil prices may also change medium-term inflation outlook soon despite today’s negative reading. The target of our long is 1.5440, just below 61.8% retracement of 1.5659-1.5107 fall.

Significant technical analysis' levels:

Resistance: 1.5388 (session high Oct 14), 1.5400 (psychological level), 1.5448 (61.8% fibo of 1.5659-1.5107)

Support: 1.5223 (low Oct 7), 1.5141 (low Oct 6), 1.5130 (low Oct 5)