Chart of the Day GBPUSD

Chart of the Day GBPUSD

GBPUSD: BOE left bank rate steady, still cautious ahead of Jan 2020 Brexit headline: The Bank of England MPC voted 7-2 (unchanged) to keep bank rate steady at 0.75% as widely expected and reiterated its hawkish stance. Among key points being of the latest statement include that BOE expects growth to pick up from current below-potential rates, “supported by the reduction of Brexit-related uncertainties, an easing of fiscal policy and a modest recovery in global growth”. Economic data were broadly in line with November Inflation Report, global growth offers signs of stabilising. The partial de-escalation of US-China trade war provides additional support to outlook but trade tensions remain elevated. BOE said that U.K. GDP is expected to grow marginally in 4Q and financial markets remained sensitive to domestic policy development. There are signs that the labour market is loosening, although it remains tight. Pay growth “has eased somewhat” but unit labour costs continued to grow at rates consistent to meet its 2% inflation in the medium term. CPI is still expected to fall to 1.25% by spring. BOE appeared to remain cautious in its latest statement, sticking to its “wait and see approach” ahead of key Jan 2020 Brexit deadline. It repeated that at this juncture, monetary policy could still respond in either direction and it will continue to monitor closely the responses of companies and households to Brexit developments as well as the prospects for a recovery in global growth. It reinforced its hawkish stance that “some modest tightening of policy, at a gradual pace and to a limited extent, may be needed to maintain inflation sustainably at the target”, barring from the materialisations of Brexit and global growth risks

UK retail sales plunged in November ahead of election: UK retail sales plunged by 0.6% MOM in November (Oct: 0.0% revised), a major disappointment compared to a Bloomberg consensus call of a 0.2% MOM growth. The decline was a result of a broad-based contraction save for a rebound in household goods stores while online sales continued to fall for the fourth consecutive month (-0.3% vs – 0.5%).Looking back, retail sales have been falling for three months within a four month period, reflecting UK consumers’ cautious spending pattern as Brexit uncertainties weighed on sentiments in the month leading to the recent general election. 

USD: US existing home sale, initial jobless claims missed forecast: US data turned out to be rather disappointing. The Philadelphia Fed Business Outlook Survey reported that its headline index slipped by 10pts to 0.3 in December (Nov: 10.4) but stronger new orders and shipments reflect an optimistic outlook. The Conference Board Leading Index was unchanged in November (Oct: -0.2% revised) as negative contributions from jobless claims and especially ISM new orders offset positive contributions from the rest of the sub-components. Initial jobless claims dropped to 234k for the week ended 14 December (previous: 252k), but missed forecast of 225k, reflecting potential Thanksgiving seasonal adjustment issue. Existing home sales in the US dropped more than expected by 1.7% MOM in November (Oct: +1.5% revised) to a five-month low of 5.35 mil annual rate, in contrast with the recent upbeat readings that gauge home building activities, suggesting a continuous lack of inventory that is holding back potential buyers. 

From a technical and trading perspective, GBPUSD has quickly erased its post election spike to 1.35 an a typical buy the rumour sell the fact fashion. The current correction is now testing the pivotal 1.30 support (highlighted in the Daily Market Outlook), this level represents the break out zone that was hurdled ahead of the election, it is also a symmetry swing support and the 38.2% retracement of the last impulsive push higher. If bids emerge here than there is a window to set a base, a close today above 1.3120 would flip the daily chart bullish as per the near term volume weighted moving average, encouraging bulls to target a retest of the post election spike enroute to an equality objective at 1.36

 

  Daily Market Outlook, April 3, 2020

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