The spotlight is on the Pound today ahead of the UK inflation report.
Market participants’ attention will be focused on the British Pound today in light of the UK Consumer Price Index report which is scheduled for release early in the afternoon. The inflation report will be the key piece of data for the Pound this week alongside the retail sales figures that will not come in until Friday thus the price action in the British currency will pretty much depend on the way today’s report prints. What further highlights the importance of the inflation reading today is the fact that as we know inflation is the number one concern for the Bank of England. The central bank had raised rates last year to arrest the rallying growth in prices and just last week Governor Carney made it clear that more rate hikes should be expected soon.
Clearly the reason why the Bank of England are planning to raise rates again sometime soon is the fact that they see inflation not slowing down as much as they would want hence the importance of today’s data. The report is too close to call but given the bullish bias coming from the BoE and their intention to further tighten their interest rate policy the risk is obviously to the upside. A 3% reading will again remind investors that inflation is not easily subdued and it will point towards a fresh rate increase in the next months which should send the Pound rallying. The first area of focus comes around the 1.40 mark and a successful break above that will pave the way towards the 1.4250 highs at the beginning of the month. However, even is today’s data comes in softer than expected we would expect the Pound to remain well supported above or around the 1.38 mark as the fundamental backing from the BoE guidance should keep short-sellers at bay.
The Pound seems to have found a bottom and a break higher will point towards the 1.40 mark today.
Equities continue to correct higher but it’s too early to believe that that sell-off is over.
The European and US equities futures are pointing towards a mixed opening bell today even though the Asia markets are mostly trading higher this morning. What we’re seeing right now is a continuation from Friday’s bullish session that allowed the global stock markets to breathe a bit easier and with bond yields retreating slightly from their recent highs equity traders are looking for bargains. Nevertheless, it is still too early to suggest that the correction that we’ve witnessed since the beginning of the month is over. From both a fundamental and a technical standpoint we need more evidence: yields need to return below 2.5% and markets should look to break above their recent highs which would suggest a reversal attempt. In the meantime, today we expect a mildly positive trading day as there’s little in terms of news on the docket which should allow traders to continue looking for some buying opportunities.