Europe strength, UK inflation

We had a lot of data today. Early in the morning, we have seen an outstanding German GDP. The next big announcement was the UK CPI that surprisingly has shown the same reading as the previous one. Followed by this, the German ZEW economic sentiment and the European GDP.At the same time, the central bank governors from the Fed, BCE, BoE, and BoJ were in a communication event hosted by the European Central Bank. Let’s check more in detail what happened with the British Pound and the Euro.

UK inflation data

As I said before, the UK CPI has been released at 9:30. The reading was 3,00%, the same as the September figure. This makes pressure to the Bank of England. Will they raise rates in December? On the other hand, the uncertainty about getting a Brexit deal is growing. If the policymakers don´t reach a deal focused on trade, the British economy will suffer due to the contingency plans from the private companies. In this theoretical scenario, the BoE will be in trouble because the inflation will peak and they have a limited margin to raise the overnight rate due to the high level of debt held by the households. This scenario has a low probability in my opinion.

GBPUSD December 2017 future

     Source: TradingView, GBPUSD Dec 17 futures, daily

Here we can see a bearish trend in the British Pound vs the US Dollar that seems that it’s consolidating and creating a strong resistance around 1.3070. This trend signals the disappointment of the rate rise in the current situation and the uncertainty of Brexit.

     Source: TradingView, GBPUSD Dec 17 futures, 30 min

The reaction of the strong UK CPI has been negative for the GBP in the first two hours after the release. After that, it has recovered. 

    Source: TradingView, GBPUSD Dec 17 futures, daily

The Pound has broken higher while I was writing this post. Head and shoulders confirmed.

European data

Europe has shown its strength with the macroeconomic data today. This morning Germany has released a strong Gross Domestic Product. The GDP (YoY) was in line with the expectations, but the GBP (QoQ) was better than the forecast.

      Source: ZeroHedge, chart taken from Bloomberg

The Geman ZEW economic sentiment was slightly worse than expected, 18.7 vs 20 expected by the analysts. The European GDP growth was in 2.5% and the industrial production 3.3%. These figures confirm the good moment of the European economy.

EURUSD December 2017 future

     Source: TradingView, EURUSD Dec 17, daily

The USD has been raising vs the Euro since September. The European Central Bank has shown its conservative side while the Fed is clearly hawkish. Today the central banks' governors agreed that the economic policy will take part only if the improvement of the economies continues. 

Source: TradingView, EURUSD Dec 17, 30 min

The Euro has rocketed today with the positive data. The strange thing is that we haven’t seen any retracement.

Conclusion

It’s been a good day for the euro but there are some issues to resolve. The main concern is the European inflation is not as high as the BCE would like it. The strengthening of the euro can lead to keeping the inflation low and Draghi knows about it. In the other side, the Bank of England is raising rates in order to fight the inflation.  This is not well seen by the market participants due to the Brexit uncertainty. In the other side of the Atlantic, Janet Yellen confirmed that the Fed will raise rates according to the economic improvement. Working nowadays in a central bank is not easy, considering that they need to be careful with their language, prepare the markets to avoid repercussions on the real economy and guide consumers about the expected outlook. All of these things shouldn't affect your trading but I think macroeconomics is helpful at least to understand the big movements.
Have a good trading!

Disclaimer

I wrote this article myself, and it expresses my own opinions that shouldn't be used as a trading advice. Trading carries considerable risk due to the high leverage involved