Many inflation reports were/are scheduled to be released today from the Eurozone and the US, but the UK employment report stole the attention. This report gave some life to the forex market which has been incredibly quiet.
Any forex trades in sight? Check out this midday brief for some trade ideas.
Inflation is moving higher in the UK while the income is not.
It kicked off with the Japanese producer price index (PPI) in the early hours of the morning. The PPI beat expectations and climbed close to 3% - quite a climb from around 1% in March, but it’s not being backed by higher income (wages, salaries, bonuses, etc).
The other economic indicators haven’t been surging, so just like the UK, the economic situation in Japan is not great. The Bank of Japan (BOJ) can’t do much when inflation is picking up so fast, but the economy remains stagnant - hence why the JPY ignored the PPI report today.
Later on today, the inflation numbers from Europe were slightly positive. The world economy is not exactly flourishing even though it’s in a good place after troubled years.
So, inflation should pick up, but not as fast as in the UK for instance. Inflation should go hand-in-hand with the economy, unless there are major external shocks (war, Oil prices), so a slight pickup as we are seeing most European countries is a lot healthier.
The US PPI report is up next. Both PPI and core PPI are supposed to jump to 0.2% and 0.3% respectively which would be pretty good considering that the previous reading was negative.
That would be one more positive indicator for the FED, and we know that the FED would love to hike the interest rate a few more times in case of another emergency such as another economic or financial crisis. So, if the PPI number comes out above expectations, then I see a rally in the USD but short-lived.
UK Employment Report, the Only Source of Action Today
We covered the UK employment report in the previous forex updates explaining how the rest of the British economy is not keeping up with inflation with many sectors weakening in recent months. Today’s report indicated that things are not going as planned in UK; unemployment declined further while new employment increased, but the earnings (wages and salaries) remained stagnant.
That means one thing only - that in the near future the higher prices are going to weigh on people’s pockets if wages don’t catch up with inflation. That will then turn into all sort of nasty things, such as lower retail sales, lower investment, etc.
So, the British Pound lost about 80 pips after the economic release, which is the only decent move we have seen so far today. That opened up the door to a couple of trades, which we have listed below.
Trades in Sight
- The bigger trend (daily & H4 chart) is up
- The retrace down seems to be coming to an end
- Stochastic is oversold on the H1 chart
- The resistance at 1.3230 will provide support now
- The previous hourly candlestick closed as a pin
The GBP dived after the employment report, but the dive seems to be over. In fact, the report was just an excuse for a retrace lower because the trend can’t go on forever without completing a retrace now and again.
We haven’t opened a buy forex signal in this pair yet, but we might do so anytime now especially if this forex pair does slip to 1.3220-30.
- The bigger trend (daily & H4 chart) is down
- The retrace higher is complete on the H1 chart
- Stochastic is overbought
- The area around 0.9035-40 provided resistance yesterday
That's a nice selling spot for EUR/GBP.
This forex pair has been trending down in the last couple of weeks, so today's retrace higher is a good chance for sellers to look for shorts. The price is having trouble at the 50 SMA yellow, so that’s a good spot to open a sell forex signal.
I expect to see the same price action in the afternoon, so the trades might be scarce, besides the two trades that we just highlighted above. The US PPI report is due soon, but I doubt that will do much harm in the markets unless the numbers are off the charts. Well, let’s see if we can catch a few pips.