The GBP/USD pair was the best performing major currency on Wednesday after the UK ONS reported the unemployment rate at multi year lows and a slight uptick in the wage data. Heading into the report, the sentiment was weak; courtesy of Tuesday’s weak inflation figure. Hence, the positive reaction was intense after upbeat labor and wage data. The gains were extended further after the US retail sales printed lower than expected.
Get ready to bid adieu to March rate hike
The US CPI for September, due later today, is seen dropping into negative territory. The core CPI is seen unchanged at 1.8%. The rate hike bets have already taken a hit after the dismal US retail sales report. As of now the CME fed probability of a 25 basis point rate hike stands as follows –
March 2016 also shows a 9% probability of a move in the Fed funds rate to 0.75%. So the total rate hike probability is at 50%. In case, the CPI prints in the negative, we can forget about March 2015 rate hike leading to further rally in the GBP/USD pair. It is worth noting that, more the Pound rallied, closer we move towards a weaker UK data and a possible delay in the BOE rate hike.
Technicals – Bullish above 1.5484
Sterling’s break above 1.5387, followed by a break above 1.5405 (50-DMA) indicates the spot is poised to extend gains today. However, further gains could be seen only above the falling trendline and 100-DMA resistance at 1.5484 levels. A break above 1.5484 could open doors for 1.5608 (23.6% of Apr-Jun rally). On the other hand, a failure to take out 1.5484 in early Europe could trigger a minor dip to 1.5409 (38.2% of Apr-Jun rally) – 1.5405 (50-DMA).
EUR/USD Analysis: Bullish above 1.1475
The EUR/USD pair rose to an intraday high of 1.1489 and closed the NY session around the same on the back of a broad based USD sell-off.The stage appears set for a further rally in the EUR/USD pair. The Fed rate hike bets have taken a hit as discussed above and a negative inflation figure could only delay rate hike further.
Consequently, the USD weakness is here to stay. Even if the markets turn risk averse, the safe haven appeal of the treasuries could keep USD upbeat against the risk assets, but the EUR is likely to continue its rise.
Technicals – Trades above 161.8% expansion level
Euro currently trades above 1.1475 (161.8% expansion of March low-March high-April low). The spot could extend its run to 1.1560 (Aug 26 high) in case it manages to sustain above 1.1475 in early Europe. On the other hand, a failure to sustain above 1.1475 could trigger a technical correction to 1.14 levels. Moreover, an hourly close above/below 1.1475 could decide the intraday trend today.
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