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GBP/USD and EUR/GBP Breaks Fizzle, Kiwi Rallies on CPI, Oil Tumbles

GBP/USD and EUR/GBP Breaks Fizzle, Kiwi Rallies on CPI, Oil Tumbles

2017-04-20 04:18:00
John Kicklighter, Chief Currency Strategist
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Talking Points:

  • The Pound surge after the UK Prime Minister's snap election call pushed GBP/USD and EUR/GBP to the edge but not beyond
  • A jump in New Zealand inflation has boosted appetite for carry, but how much Kiwi lift should we expect?
  • Technicals dominant over fundamentals and momentum in with oil prices dropping sharply in range and gold holding trend

See the DailyFX Analysts' 2Q forecasts for the Dollar, Euro, Pound, Equities and Gold on the DailyFX Trading Guides page.

The Pound still holds the title of this week's biggest mover across the financial system, but volatility certainly doesn't guarantee follow through. While UK Prime Minister May's announcement of an early June election throttles the speculation surrounding the Brexit theme, there is still a long wait until resolution is found and a considerable amount of variability in the implications of this latest development. That uncertainty was obvious Wednesday when the Sterling stalled despite marking serious progress against major counterparts. GBP/USD easily cleared 1.2600 and ultimately went on to close above a six-month range high at 1.2800. Along similar lines, EUR/GBP readily took out a rising trendline support at 0.8450 that read like a neckline on a head-and-shoulders pattern only to be held up at horizontal 0.8300 floor. Follow through in restrained markets does not come so readily - a burden for those looking for serious technical breaks to facilitate high profile trends.

Another short-lived jolt was realized this morning in the Asia session with the release of the New Zealand 1Q CPI reading. Price pressures accelerated to their fastest pace since the end of 2011 and in turn revived the distant hopes of RBNZ rate hikes to help slowly restore the Kiwi to its former glory. The For pairs like NZD/USD, EUR/NZD and GBP/NZD the technicals aren't as remarkable and/or the fundamental crosswinds are too heavy to sport trends. Meanwhile, AUD/NZD has extended a third, strong day's decline. Looking at NZD/JPY attempting to break and reverse a remarkably consistent descending trend channel, it is important to judge the event risk for what it is able to accomplish and the restraint in broader market conditions. Event risk through the rest of the Thursday session has highlights, but doesn't come with the promise of isolated - much less systemic - trends.

More Fed speak, Japanese trade statistics and Euro-area confidence (especially in light of this weekend's French election) will all command headlines. Yet activity and trend are another matter entirely. Perhaps the most loaded docket comes on the Pound's behalf. The UK's Theresa May is due to speak to a representative at the EU Parliament while BoE Governor Mark Carney is due to deliver two speeches. Whether or not this motivates the Pound to a greater trend than what the snap election generated depends on what the implications for a Brexit course adjustment are. Outside scheduled event risk, the influences of risk trends continue to exert pressure if not outright opportunity. Global equities and other riskier assets slid this past session but few made bids for significant technical progress. On the commodities side though, there was plenty of movement. Gold facing a trendline resistance that traced back to the record high in September 2011 decided to retreat as technical influence won against a restrained fundamental background. The same logic applies to oil which may have produced a strong drop but did so comfortably in a broad range. We discuss activity and opportunity in the markets in today's Trading Video.

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GBP/USD and EUR/GBP Breaks Fizzle, Kiwi Rallies on CPI, Oil TumblesGBP/USD and EUR/GBP Breaks Fizzle, Kiwi Rallies on CPI, Oil TumblesGBP/USD and EUR/GBP Breaks Fizzle, Kiwi Rallies on CPI, Oil Tumbles

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