Key Points:
- Cable rallies on stronger UK CPI data.
- Watch for the impending UK Core Retail Sales figures.
- Cable gains likely to be limited.
The cable managed to surprise markets overnight with an unexpected sharp uptick in the UK consumer price index to 1.0% y/y (0.6% prev). This kicked off a sharp rally for the pair which saw it closing the gap on the 1.2300 handle. However, plenty of UK and US economic data is waiting in the wings and any further gains remain uncertain. Subsequently, we take a quick look at what occurred in last week’s session and what potentially lies ahead over the next few days.
The cable’s woes largely continued last week as the pair slid back below the 1.22 handle amid a growing rift between the UK and Europe over a potential Brexit. In fact, France has since commented that any ultimate exit of the EU should be negative in nature to discourage further referendums. Additionally, they also hinted that the UK’s borders should remain open as a cornerstone of any negotiating position.
This hit the cable relatively hard and saw it again entering selloff mode as uncertainty over the Brexit negotiations seemingly continue. Also, the stronger than expected US data also impact the embattled pair as the US PPI and Core Retail Sales figures came in above expectations.
However, much of these losses were regained during Tuesday’s session when the UK inflation figures demonstrated robust gains. This result largely surprised markets and combined with a softer greenback saw the cable rising steadily towards the 1.2300 handle. This was no doubt a welcome respite for the embattled pair but there is plenty of volatility remaining on the horizon over the next 48 hours.
In particular, the UK Unemployment and Claimant Count Change data could be relatively illuminating and determine the pair’s near term trend. The Unemployment Rate is largely expected to remain steady at 4.9% but the claimant count is always subject to a wide variability. This time around the market is largely expecting a slight rise to 3.1k (2.4k prev) but any worsening to the labour markets could again see the cable under pressure.
In addition, Thursday has the UK Core Retail Sales figures being released and this print is highly likely to cause some sharp swings for the pair and probably determine the trend direction for the remainder of the week.
From a technical perspective, the pair remains highly predisposed to the downside given the recent penetration of the 1.20 handle and the bearish direction of the moving averages. However, our initial bias is neutral for the week ahead due to the fact that the RSI Oscillator remains oversold and may need a period of moderation, or indeed a pullback, to relieve some of the pressure. Support is currently in place for the pair at 1.2079, and 1.1991. Resistance exists on the upside at 1.2472, 1.2768, and 1.3120.
Ultimately, it is likely to be a busy few days ahead for the embattled pair with the slew of US and UK economic data which is pending. Although the cable has been buoyant over the past 24 hours the upside is mostly limited with strong resistance around the 1.272 mark. Subsequently, although the recent bounce is a welcome one it is unlikely to signal a break to the longer term bear trend.