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The UK’s annual inflation rate measured by the Consumer Price Index (CPI) missed market analysts’ expectations with a rise of 0.7% in March of 2021 up from 0.4% in February. The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 1.0% in the 12 months to March 2021, up from 0.7% in February. With rising prices for motor fuels and clothing contributing the most to the upward change in the CPIH year-on-year rate between February and March 2021. However, the GBPUSD was initially stronger at the London session open as traders took the rise in Core CPI as a positive that inflation is likely to pick up the further the COVID-19 restrictions ease. Pubs across the UK are opening up and retail stores will be opening their doors, so the coming months will show whether there has been a pent-up demand building and how confident the UK is at bouncing back fully.
The pound has traded back to the 60-period exponential moving average (EMA) on the hourly time frame, which is now acting as support. If buyers do step in at 1.3930 the strong momentum shown on the higher time frames would lead us back to the recent highs but if this level fails to find further support, the worry for pound bulls is the speed at which the pair appreciated against the dollar from 1.3730. Meaning we could as quickly drop back to the previous consolidation levels and test for buyers below the stops that would inevitably get run around the 1.3685-1.3690 price area.
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The ActivTrader sentiment indicator for the GBPUSD shows that the majority of traders are bearish of the pair, so the contrarian trade would be to continue looking for buying signals.
In overnight trading, the US dollar index shows that there is continued support around the 91.20 level and that this bull run is not entirely over without a fight. The Fed’s FOMC is currently in the blackout period so we are relying on news from other nations as well as continued reports around the USA pandemic situation to give us some direction.
The Japanese yen continued to strengthen against the US dollar and also the majority of the G-7 currencies though the Canadian dollar is currently the strongest of the basket. The USDJPY has broken through support and I am looking for signals that this pair will fall further and test support around the 106.55-106.00 zone as the bears are firmly in control.
Oil has retraced and tested the recent range and found buyers still to be supportive around the $62 per barrel and we have Tier 1 data out of Canada today with expectations of Canadian inflation to rise.
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Japan’s government is to declare another state of emergency in Tokyo, Osaka, and Hyogo due to rising concerns of COVID-19 cases spiking, the measures will include Tokyo’s department stores being mandated to close through the last week of April and into May. The Nikkei dropped 2.00% on the worsening news but the bearish tone did not affect all of the Asia-Pac session. Notably the Shenzhen Composite Index was slightly up by 0.32%.
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