The beginning day of Brexit negotiations is next week and the sterling plunged following the announcement and ahead of the U.K. CPI report. European Commission states ready boosting the euro.
U.S. dollar has been traded higher early on Tuesday morning as USD traders are looking forward to FOMC members’ speeches today to gauge the timing of the next rate hike.
Cable Drops Ahead of U.K. CPI Report and Article 50 Triggering
The awaited Brexit will delay for one more week and the official day U.K. Prime Minister Theresa May will trigger Article 50 leading U.K. out of the European Union is March 29th. The exit talks will take two years and the government plans to keep fiscal and monetary stimulus easy to support the economy. European Commission spokesman stated that EU “is ready to begin negotiations” while the British pound dropped against all the majors on Monday after the announcement. Later today, U.K. CPI report will be closely monitored by investors. U.K. inflation exceeded BoE’s 2% percent target for the first time since 2013 and a member of the BoE Monetary Policy Committee voted to raise rates at the last policy meeting in March. The inflation report will be significant for the future decisions of the BoE as well as the U.K. government during the two-year complex negotiations ahead to withdraw U.K. from the European bloc.
GBP/USD – Technical Outlook
The GBP/USD pair started yesterday’s session with bullish movement as it recorded a fresh three-week high at 1.2435, ahead of the announcement of triggering Article 50 next week. Afterwards, sterling was traded lower against the U.S. dollar and tested the 1.2340 barrier but it ended the day near 1.2350 price level. Currently, the price is testing the 200-SMA on the 4-hour chart and is preparing for further upside move. For long positions, our suggestion is to wait for a break above the descending trend line, that is holding since September of 2016, near 1.2460. On the other side, if the price slips below 1.2340, it would be exposed until the 1.2250 support barrier which coincides with the 50-SMA on the short-term timeframe.
Technically, the technical indicators on the same chart, seem to be in agreement with the bearish situation as both are moving lower. The MACD oscillator plunged below its trigger line but is still lies above its mid-level. The RSI indicator bounced off the 70 level and is approaching the negative territory.
FOMC Members' Speeches in Focus as USD Retain its Gains
The U.S. dollar has been traded higher against most of the G10 currencies while it was unchanged versus the euro and the Swedish krona on Monday and early Tuesday. No major U.S. economic report are expected this week but several U.S. policymakers’ speeches will impact the dollar. Following last week’s Fed policy meeting, the market participants are tuned to gauge when is the next rate hike happening and they hope that will do from the comments of the FOMC voters.
USD/JPY – Technical Outlook
With no major U.S. economic data scheduled for release this week the greenback has a weaker momentum than before. The USD/JPY has been developing below the 112.90 barrier following the fall that started after Fed's rate hike announcement last Wednesday. On the daily chart, the pair is developing within a consolidation area with upper boundary the 115.50 resistance level and lower boundary the 111.60 support level since January 11th. The next initial target is the aforementioned lower boundary. However, if the price jumps above the 112.90 resistance level, it would drive the pair towards the 113.60 obstacle.
Technically, on the same chart, technical indicators seem to be in contrast. The RSI and stochastic oscillators are confirming the upward scenario as both are sloping to the upside. Stochastic created a bullish crossover within its moving averages indicating a further rising move. On the other hand, the MACD indicator slipped below its trigger and zero lines. Going to the lower timeframe, the three oscillators are moving higher but are still holding in the bearish territory. Also, the 50-SMA is in the process of crossing the 100 and 200 SMAs to the downside.
European Commission Ready for Brexit; Euro Higher
The single currency picked up following the announcement of the date Brexit negotiations will begin and the statements of the European Committee that is ready for to start. During Monday’s and Tuesday’s trading sessions, euro has been gainful versus its G10 peers. Eurozone’s labour cost released yesterday showed an increase to 1.6% in Q4 from the downwardly revised 1.4% figure before. Today, the macro-data releases are limited to the Targeted LTRO which is not expected to trigger much volatility.
EUR/USD – Technical Outlook
The EUR/USD pair edged sharply higher so far this month, as it added almost 2% at its value and surpassed above the 1.0715 significant obstacle. The unexpected hawkishness from the European Central Bank last week supported the euro and helped the common currency pair to move upwards following the bounce off the 1.0600 psychological level.
This week started with a solid upward move and seems that the pair is ready to retest the 1.0800 – 1.0830 resistance zone which coincides with the descending trend line that is holding since last May. Also, the 200-SMA will provide a strong resistance to the bears and we are waiting for a retracement if the price hit the latter obstacle near 1.0850. Technical indicators are endorsing the bullish thought as both are biased higher. The Relative Strength Index (RSI) jumped above the 50 level and is moving towards the overbought zone. The MACD oscillator surpassed both, its trigger and zero lines, with strong momentum.
What to Watch Today
The spotlight events of the day will be the U.K. CPI report early in the morning and the few speeches from Fed members. The U.K. CPI is expected to show that the consumer prices picked up by 2.1% in February from 1.8% before and the core consumer prices by 1.8% versus 1.6% in January. It’s worth mentioning that BoE’s inflation target is 2%. The retail price index for February is forecasted to show a rise to 2.9% from 2.6% in January while public sector net borrowing is also coming out and is predicted to reveal the debt of the U.K. government expanded to a deficit of £2.500B from a surplus of £9.824B before. All the above reports will probably have an impact on the British pound as U.K. is taking the path to exit the European Union and Bank of England members will try to keep the economy financial stable through the process that will lead to Brexit.
In the U.S., Fed’s William Dudley, Esther George and Loretta Mater have scheduled speeches that will be monitored by traders to gauge when policymakers plan to raise rates again following last week’s 25bp rate hike and the forecast for two more raises in this year.