Sterling Surged on Strong Data; U.S. Inflation Rate At 2-Year High But Dollar Shrugged off

Both U.S. and U.K. inflation rates jumped to the highest level in two years but greenback remained subdued against its major currencies while sterling surged. Euro was directionless in the absence of market data while oil is hovering above $50. The traders today expect BoC policy meeting and U.K. inflation report.  

U.S. Dollar Mixed Despite 2-Year High Inflation Rate

The U.S. inflation rate may have jumped to the highest level in two years but greenback remained subdued against its major currencies yesterday, as all of the increase came from the energy prices. The OPEC decision to cut production lifted the energy prices which in turn pushed September’s inflation at 1.5%, the strongest in two years. The inflation rate ex-food and energy costs slowed to 0.1% mom versus 0.3% mom before and dragged the year over year lower to 2.2% versus 2.3% in August. NAHB (National Association of Home Builders) Housing Market Index also slowed down in October at 63 from 65 signaling a small dent in the future housing market trend in U.S. More data from the housing sector in September are coming out today and traders will keep a tab on them, as well as on FOMC Member William speech and Fed’s Beige book.

Euro Mixed on Quiet Calendar from Euro area

The absence of significant indicators and speeches from Eurozone left the single currency directionless on Tuesday and early Wednesday. The euro was traded mixed, slightly higher against the U.S. dollar, the Swedish krona, and the Swiss franc while it recorded gains versus the British pound and the New Zealand dollar. The traders expect the ECB policy meeting on Thursday to approach before opening their positions. Draghi's sentiment on the already easing measures is very important for currency's direction as it will determine the future central bank's plans.

EUR/USD – Technical Outlook

The euro dropped back below 1.1000 versus the U.S. dollar during yesterday’s session and is moving towards the 1.0950 strong support level. The EUR/USD pair is developing below the falling trend line which is holding over the last five months.

The technical structure suggests further bearish movement since the pair failed to surpass the 1.1050 resistance level. If the price slips below the 1.0950 barrier will open the way for a retest of the 1.0900 psychological level, which overlaps with the first support of the pivot points. On the daily chart, the price continues developing well below its moving averages (50-SMA, 100-SMA, and 200-SMA), whilst the technical indicators hold within the negative territory. The RSI indicator is moving near the 30 level, although with no clear directional strength. The MACD oscillator lies below its trigger and zero lines with some strong momentum.

Pound Lifted as U.K. CPI Jumped at Two-Year High

The pound elevated against the G10 currencies on Tuesday and early Wednesday as U.K. inflation jumped to 1.0% yoy from 0.6% before amid worries over Brexit. The rise in cloth and fuel prices lead CPI growth to the fastest in nearly two years. Later today, the U.K. employment will be closely watched. The headline unemployment rate for the three months to August is estimated to remain unchanged at 4.9%, as well as the average earnings including the bonus at 2.3% for the same period. The claimant count change which is expected to rise 2.6K for September from 2.4K the previous month.

GBP/USD – Technical Outlook

The GBP/USD pair surged from 1.2135 to 1.2326 resistance barrier before settling below the psychological level of 1.2300, during the Asian session. Yesterday, there was the strongest one-day rally for the pair since September and rose more than 0.9%.

From a technical point of view, over the last six days, the pair is establishing and trading within a consolidation area between the psychological support at 1.2100 and the 1.2330 resistance level. In addition, the price is trading slightly above the 50-SMA on the 4-hour chart endorsing the bullish attitude. Currently, the cable is moving near the 1.2280 region and if the bears are strong enough to push the price further up, we would expect extensions towards the 1.2500 strong obstacle. Otherwise, a failure to break the 1.2330 obstacle, if there is a successful penetration of the 1.2100 support level, then should prompt a downward move. Then, the pair will challenge 1.1978, a 31-year low. The MACD oscillator has just entered the positive territory, however, with weak momentum.

Bank of Canada Expected to Hold Key Rate Steady

The Canadian dollar has been looking a little weak against the U.S. dollar over the past couple of days and it seems that the USD bulls could take control ahead of the release of the interest rate statement by the Bank of Canada today. The BoC is expected to remain on hold, 0.50%, as the central bank is yet to report on the effects of the government’s stimulus package. The central bank will also update its forecast for economic growth in its quarterly monetary policy report. It should be noted that the BoC cut its key rate twice last year to deal with the sharp drop in global energy prices.

In a statement earlier this month, Bank of Canada Senior Deputy Governor Carolyn Wilkins said about the progress in the Canadian economy and how the central bank works to achieve the 2% inflation target. She added, that there are signs of hope in Canada’s economy as oil has recently moved back above $50 following the OPEC (Organization of the Petroleum Exporting Countries) meeting a few weeks ago.

USD/CAD - Technical Outlook

As you can see on the chart below, the USD/CAD pair failed to break, or close, below the key support level at 1.3000. On top of this, additional support was found from both the 100-SMA and the 200-SMA on the weekly chart. Moreover, it should be noted that the long-term ascending trend line, which dates back in April 2016 continues to provide a significant support to the price action. If these continue to hold, it would suggest that traders are still bullish on the pair. Therefore, the next levels to watch are the 1.3140 and then the 1.3200 key level. If the pair breaks below 1.3035 further support should be found around 1.3000. A break of this level would suggest that temporarily at least, the momentum has swung in the favor of the Canadian dollar, prompting a bigger move back towards 1.2950, 50% retracement.

German DAX 30 – Technical Outlook

The German DAX 30 index is setting up for what it could be a strong reversal in the coming weeks with both the MACD and the Relative Strength Index (RSI) showing some bullish movements over the last few sessions (4-hour chart). In addition, the index is trading above the long-term descending trend line which started back in April. Over the daily chart, both the 100-SMA and the 200-SMA, as well as the 10177 – 10255 zone, will be the first obstacles for the bears as we expect all of them to provide a strong support to the bulls in the near term. Moreover, the weekly 50-SMA is moving slightly below the aforementioned zone also ready to provide a significant support to the bulls.

Currently, the index is challenging the 10700 key level and if the buying pressure continues to push the price higher and violates the later level, the bulls are likely to target new short-term highs. Technical studies support the notion since both oscillators, MACD and RSI are slightly moving above their mid-levels.