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Sterling CPI Euphoria Quickly Fades- Yen Slides On BoJ

Sterling CPI Euphoria Quickly Fades- Yen Slides On BoJ

2011-05-17 15:13:00
Michael Boutros, Technical Strategist
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Daily Winners and Losers

Sterling_CPI_Euphoria_Quickly_Fades-_Yen_Slides_On_BoJ_body_Picture_2.png, Sterling CPI Euphoria Quickly Fades- Yen Slides On BoJSterling_CPI_Euphoria_Quickly_Fades-_Yen_Slides_On_BoJ_body_Picture_3.png, Sterling CPI Euphoria Quickly Fades- Yen Slides On BoJSterling_CPI_Euphoria_Quickly_Fades-_Yen_Slides_On_BoJ_body_Picture_4.png, Sterling CPI Euphoria Quickly Fades- Yen Slides On BoJ

The sterling enjoyed a brief rally in overnight trade after CPI data showed inflation had climbed by 1.0% m/m in April, topping calls for a print of 0.7% m/m. The year on year figure printed at 4.5%, again surpassing consensus estimates calling for a read of just 4.1%. The news lifted interest rate expectations with Credit Suisse now factoring in a 44 basis point hike for the next twelve months. The pound’s rally was short lived however, with the GBP/USD falling back to pre-announcement levels just above the 1.62-handle. Comments made by the newest member of the BoE’s Monetary Policy Committee Ben Broadbent weighed on the currency after he cited that he was unlikely to follow in the footsteps of the committee’s most vocal hawk Andrew Sentence who will be leaving the panel at the end of the month. Broadbent stated that he did not expect inflation expectations to become unanchored, noting that he would have “followed pretty much what the bank has done” in leaving rates unchanged at 0.5%.

The sterling remains in the ascending channel that has held since mid May, noting interim support at the lower bound trend line currently just shy of the 1.62-figure. Subsequent floors are seen lower at 1.6170 and at 1.6150. A break below this level sees further downside potential for the pound with targets seen at 1.6070. Topside resistance is eyed at the 1.63-handle backed by the 23.6% Fibonacci extension taken from the March 28th and May 13th troughs at 1.6340, and 1.6380. Event risk mounts tomorrow with the release of the BoE’s minutes from the May 5th meeting, with traders closely eyeing the vote tally for indications as to where the MPC stands on interest rates. Also on tomorrow’s calendar are April employment figures, with consensus estimates calling for a hold in the unemployment rate at 7.8%.

Upcoming Events

Date

GMT

Importance

Release

Expected

Prior

5/18

8:30

HIGH

Bank of England Meeting Minutes

-

-

5/18

8:30

MEDIUM

Jobless Claims Change (APR)

0.0K

0.7K

5/18

8:30

MEDIUM

Claimant Count Rate (APR)

4.5%

4.5%

5/18

8:30

MEDIUM

ILO Unemployment Rate (3M) (MAR)

7.8%

7.8%

Key Levels/Indicators

Level/Indicator

Level

50-Day SMA

1.6295

20-Day SMA

1.6442

10-Day SMA

1.6330

2011 High

1.6748

Sterling_CPI_Euphoria_Quickly_Fades-_Yen_Slides_On_BoJ_body_Picture_5.png, Sterling CPI Euphoria Quickly Fades- Yen Slides On BoJSterling_CPI_Euphoria_Quickly_Fades-_Yen_Slides_On_BoJ_body_Picture_6.png, Sterling CPI Euphoria Quickly Fades- Yen Slides On BoJ

The yen was the worst performer in overnight trade, falling more than 0.65% against the greenback. The losses come on the heels of remarks made by Bank of Japan Governor Masaaki Shirakawa who cited that the state of the Japanese economy remained “very severe” in the aftermath of the disaster that struck the isle-nation back in March. The dollar quickly surged to the 81.70 resistance level before surrendering gains back to 81.30 where interim support now rests. The ascending channel that has held the pair since May 5th remains intact, with a breach of the upper bound trend line encountering immediate resistance at the 38.2% Fibonacci retracement taken from the March advance, at 81.90. A break below 81.30 sees subsequent floors at the 81-handle, and at the convergence of the lower bound trend line and the 50% Fib retracement at 81.80.

Economic data overnight will be closely eyed by traders with first quarter GDP figures expected to show further contraction in the domestic economy. Consensus estimates call for an annualized contraction of 2.0% in Q1, down from a previous loss of 1.3%. On a quarterly basis, GDP is seen contracting by 0.5% from a previous loss of 0.3% q/q. Investors continue to speculate on the degree to which the March disaster will impact one of the world’s largest exporters.

Upcoming Events

Date

GMT

Importance

Release

Expected

Prior

5/17

23:50

MEDIUM

Tertiary Industry Index (MoM) (MAR)

-5.8%

0.8%

5/18

23:50

HIGH

Gross Domestic Product (QoQ) (1Q P)

-0.5%

-0.3%

5/18

23:50

HIGH

Gross Domestic Product Annualized (1Q P)

-2.0%

-1.3%

5/18

23:50

MEDIUM

Gross Domestic Product Deflator (YoY) (1Q P)

-1.9%

-1.6%

5/18

23:50

MEDIUM

Nominal Gross Domestic Product (QoQ) (1Q P)

-0.8%

-0.7%

Key Levels/Indicators

Level/Indicator

Level

50-Day SMA

81.99

20-Day SMA

81.19

10-Day SMA

80.73

2011 High

85.51

Written by Michael Boutros, Currency Analyst for DailyFX.com

To contact the author of this report, please send inquiries to:mboutros@dailyfx.com

You can also follow Michael on Twitter @MBForex

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

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