It’s the inflation week. In the next few days, we will be watching many economic releases, including inflation, growth and jobs reports as well. However, the world will be focusing on inflation data, especially that the past few months showed a notable rise in many countries, such as in Europe.
Such rise in inflation pushed the ECB to announce a plan to end the current QE, which had a notable impact on the markets. Moreover, the US inflation is also picking up, while the Federal Reserve have already hiked the rates twice in the past two years.
China’s Inflation Accelerating
Earlier this morning, China’s inflation has been released, which came in higher than the market estimates.
The YoY CPI advanced to 2.5% in January compared to 2.0% in December of last year, while the estimates were to rise to 2.4% only. Today’s data is considered the highest since May of 2014.
Moreover, the YoY PPI also overshoot to the highest level since 2012, rising to 6.9% in January compared to 5.6% in December. This is also the fourth YoY increase in a row. One we have not seen since 2010.
Gold Recovering on Inflation
During the Asian session, Gold prices recovered almost 90% from yesterday’s decline, rising all the way to $1230 up from $1219.
This is mainly due to the Chinese inflation data. Since the beginning of the year, Gold has been rising gradually due to the notable rise in inflation across the board.
Since inflation is rising, and it seems to be a gradual increase, Gold has some potential ahead. Yet, a break above 1240 is still needed to clear the way for further gains ahead, probably above $1250
UK Inflation Expectations
| Indicators |
Forecast |
Prior |
| CPI YoY |
1.9% |
1.6% |
| PPI Input |
1.0% |
1.8% |
| Core CPI YoY |
1.7% |
1.6% |
| PPI Output |
0.4% |
0.1% |
The UK inflation is expected to rise further in January to 1.9% up from 1.6%, which would be the highest level since June of 2014. Moreover, it would also be the third monthly increase in a row. One we have not seen since 2012.
Bank of England Policy
Traders need to be aware that the Bank of England is likely to keep the current policy unchanged, even if inflation is rising and even if it crossed above 2% target.
The Bank of England noted that inflation likely rises above its inflation target for some time, probably towards 2.5% before declining again.
Moreover, Brexit effect is still not there yet. This is why the Bank of England is expected to keep the current policy unchanged. Also, the chances are still higher to increase the current purchases program over the coming months, especially if growth stayed fragile.
GBP Outlook
The British Pound managed to close yesterday higher, supported by 1.2480 area. Earlier this morning, the pair ticked higher above 1.25 resistance area, which should be watched very carefully in the coming hours.
The Technical Indicators crossed over to the upside, which keeps the estimates higher for another push higher above 1.26 in the coming days, especially if inflation figures showed a notable rise.
On the downside view, the bullish outlook remains as long as 1.2440’s remains intact, while only a daily close below 1.24 would clear the way for further declines all the way bac to 1.2380’s which represents its 50 DAY MA
Levels To Watch
| Symbol | S3 | S2 | S1 | Pivot | R1 | R2 | R3 |
| GBPUSD | 1.2410 | 1.2439 | 1.2483 | 1.2512 | 1.2556 | 1.2585 | 1.2629 |
| GBPJPY | 140.13 | 140.67 | 141.56 | 142.10 | 142.99 | 143.53 | 144.42 |
| EURGBP | 0.8359 | 0.8405 | 0.8433 | 0.8479 | 0.8507 | 0.8553 | 0.8581 |
| GBPAUD | 1.6094 | 1.6156 | 1.6275 | 1.6337 | 1.6456 | 1.6518 | 1.6637 |
| GBPCHF | 1.2407 | 1.2451 | 1.2523 | 1.2567 | 1.2639 | 1.2683 | 1.2755 |
| GBPNZD | 1.7153 | 1.7222 | 1.7336 | 1.7405 | 1.7519 | 1.7588 | 1.7702 |
