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Analysis

UK inflation remains in double digits

BY Janne Muta

|April 19, 2023

The UK's y/y headline inflation remains in the double digits, and core annual inflation didn't change from February to March (6.2% vs. 6.2% prior). In the 12 months leading up to March 2023, the headline CPI increased by 10.1%, a slight decrease from 10.4% in February. Now that the monthly reading came in hotter than anticipated there’s additional pressure on the BOE to raise rates next month.

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Looking more closely, food prices and recreation and culture contributed to the increase in monthly inflation. However, this was offset by the decrease in motor fuels and housing and household services. The persistent inflation adds more stress on policymakers after the recent strong wage data (Average Earnings Index 3m/y: 5.9%, 5.1% expected, 5.9% prior). Thus, the report very likely means the BOE will hike by 25 basis points next month.

In equities the Dow Jones Industrial Average fell by less than 0.1%, while the S&P 500 increased by 0.1% and the Nasdaq Composite slipped by less than 0.1%, posting its eighth loss in 11 trading days.

Bank of America and Bank of New York Mellon reported rising revenues, causing their shares to rise by 0.6% and 1.5%, respectively. Meanwhile, Goldman Sachs stock declined by 1.7% due to a slowdown in deal-making and a loss on its Marcus loan book (a consumer loan portfolio) that affected its profit and revenues.

At the end of Monday's trading, the yield on the 10-year Treasury note dropped to 3.571% from the previous day's close of 3.590%. This steadied the gold market and the XAUUSD traded higher by 0.5%.

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GBUSD

The GBPUSD remains in an upward trend above 1.2344 despite losing some momentum recently. The market initially reacted weakly to the higher-than-expected but lower-than-previous CPI, but has since gained traction again, with bulls anticipating another rate hike from the BOE. As long as the market holds above 1.2344, a move to 1.2550 and then 1.2660 is possible.

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DAX

DAX is bullish above 15 762. On a decisive break below the level, the market would probably trade down to 15 690 or so. While there are some signs of weakness in the US indices (loss of upside momentum) DAX has been relatively strong. As a rule, it pays to trade the long side in the market that is stronger than the others. However, if the weaker markets experience a significant decline, the stronger market's upside performance may be limited until the overall weakness is resolved.

Therefore, it makes sense to look for long signals in DAX on a resumption of strength, but only if the US indices don’t fall off the cliff. The nearest key resistance level is yesterday’s high (15 917). A strong penetration of the level would imply a move to 16 050 could be in the cards. The key support levels in DAX are 15 762 and 15 828.

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Gold

Gold remains bullish above 1981 but should there be a clear penetration of the level (a quick penetration with the price closing back above the level doesn’t count) the market would be likely to trade down to 1955. Above the 1981 level, look for a move to 2033.

Yesterday’s inside bar in the daily timeframe chart is bullish but as usual, we need to see further evidence for these indications and only trade the long side if we see the market lining up with our thesis. Otherwise, we need to either stay in cash and look for signals to short the market. The nearest key price levels to monitor (or to trade against) are 1981, 2015, 2033 and 2048.70.

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EURAUD

EURAUD is bullish above 1.6245. Below the level, the market could move to 1.6170 (the bull channel low and the 61.8% Fibonacci level). Above 1.6245 the market looks likely to test a minor resistance at 1.6404.

The Next Main Risk Events

  • NZD CPI
  • USD Unemployment Claims
  • USD Philly Fed Manufacturing Index
  • USD Existing Home Sales
  • CAD BOC Gov Macklem Speaks
  • USD FOMC Member Waller Speaks
  • USD FOMC Member Harker Speaks
  • GBP Retail Sales m/m
  • EUR French Flash Manufacturing PMI
  • EUR French Flash Services PMI
  • EUR German Flash Manufacturing PMI
  • EUR German Flash Services PMI
  • EUR Flash Manufacturing PMI
  • EUR Flash Services PMI
  • GBP Flash Manufacturing PMI
  • GBP Flash Services PMI
  • CAD Core Retail Sales m/m
  • CAD Retail Sales m/m
  • USD Flash Manufacturing PMI
  • USD Flash Services PMI

For more information and details see the TIOmarkets economic calendar.

Trade Safe!

Janne Muta
Chief Market Analyst
TIOmarkets

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Janne Muta

Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.

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