Cable in the focus with the US and UK inflation levels pending for release

Price action in the Forex markets during the first 24 hours of trading this week has been generally limited which is a relief only a couple of days after the terrorist attack in Paris. That shows that investors and traders were not scared away from their positions and trades from yet another mindless act of terror and hatred.

With the economic calendar empty traders were looking ahead on the events and reports pending for release later in the week but we didn’t notice any major flows or repositioning to take place. Starting today though the calendar offers important opportunities as the major currencies will be in play and this morning it’s the Pound that will attract the attention as the release of the UK inflation levels is bound to drive the UK currency out of its current consolidation pattern.

The Cable has been trading between the 1.5170 and 1.5250 levels for the past few days as the lack of any important UK-related news has driven the Sterling traders to keep a waiting stance until they get a feel for what the BoE might do. We have mentioned plenty of times that the UK central bank would like to raise rates at some point but only after the Fed pulls the trigger first.

The release of the inflation levels today is important as the BoE has cited the low levels of inflation as one of their key concerns and if the inflation ticks lower this month this will add one more reason for the policymakers to back off from tightening interest rates. Analysts expect the report to print steady but there is a chance for a surprise to the downside. Should that happen the Cable will suffer and the 1.5100 area will come into focus as traders will look to move out of the Pound towards higher yielding currencies.

The Euro remained weak yesterday and lost the 1.0700 level and this morning it’s trading around the 1.0650 area. There is a host of reports pending for release today with the ZEW Survey and the US inflation levels being the most important. The economic sentiment report is expected to show some progress but we doubt that it will have any effect on the falling Euro while a strong US inflation printing will increase the pressures on the Single currency.

The sentiment on the Euro is bearish and unless we see a surprise from an important US-related report that will cast doubts on whether the Fed will raise rates then the only way that the Single currency is going is lower. The target to keep in mind is the 1.0500 area for the medium term so any potential correction rallies or downward breakouts should be treated as selling opportunities.