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Top 5 Events: March UK Inflation & GBPJPY Price Forecast

Top 5 Events: March UK Inflation & GBPJPY Price Forecast

2019-04-12 20:40:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Talking Points:

- The March UK Consumer Price Index is due on Wednesday, April 17 at 08:30 GMT.

- With the Brexit deadline having been punted to October 31, it’s possible that the British Pound proves more sensitive to economic data in the meanwhile once more.

- Retail tradersare net-short GBPJPY but recent positioning changes suggest gains are possible in the near-term.

Join me on Mondays at 7:30 EDT/11:30 GMT for the FX Week Ahead webinar, where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.

04/17 WEDNESDAY | 08:30 GMT | GBP Consumer Price Index (MAR)

Rebounding energy prices over the past several months have seen inflation readings across the developed world stabilize at the start of 2019; the UK Consumer Price Index should be no different. The upcoming March UK inflation report is due to show headline inflation due in at +2.0% from +1.9% (y/y), while the monthly reading is due in a 0.2% from 0.5%. Core CPI is expected to have increased to 1.9% from 1.8% (y/y).

While the Bank of England’s Monetary Policy Committee has repeatedly made clear that the lack of clarity over Brexit would give pause to any change in policy, thereby neutralizing the impact of economic data, with the Brexit deadline having been punted to October 31, it’s possible that the British Pound proves more sensitive to economic data in the meanwhile once more.

Pairs to Watch: EURGBP, GBPJPY, GBPUSD

GBPJPY Technical Forecast: Daily Price Chart (December 2017 to April 2019) (Chart 1)

gbpjpy price forecast, gbpjpy price chart, uk inflation, march uk inflation forecast

Since February 22, GBPJPY prices have traded in a range between 143.78 and 148.87. From one point of view, this means the cross provides little opportunity. From another point of view, the recent consolidation in GBPJPY price action may be akin to a coiling spring storing potential energy; the release of the kinetic energy, the breakout from the range, is worth waiting for.

Amid the sharp drop in volatility among the entire GBP-complex, and the broad improvement in risk appetite in general by the end of the week, GBPJPY found itself trading back in the top half of its near two-month range. Gains back towards the range high near 148.87, particularly in a week where there won’t likely be any developments on the Brexit front due to UK parliament being closed for Easter, shouldn’t be ruled out in the near-term.

IG Client Sentiment Index: GBPJPY (April 12, 2019) (Chart 2)

igcs gbpjpy, ig client sentiment index, gbpjpy price forecast

Retail trader data shows 43.3% of traders are net-long with the ratio of traders short to long at 1.31 to 1. The number of traders net-long is 22.1% lower than yesterday and 6.0% lower from last week, while the number of traders net-short is 5.7% lower than yesterday and 3.9% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPJPY prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBPJPY-bullish contrarian trading bias.

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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher, email him at cvecchio@dailyfx.com

Follow him in the DailyFX Real Time News feed and Twitter at @CVecchioFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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