In his speech at the Trades Union Congress, Bank of England Governor Mark Carney said that market expectations of the first rate hike by spring next year fits the central bank's estimate for the medium-term inflation rate to reach 2%. However, he reiterated BoE’s stance that those increases are likely to be gradual and limited and will be data driven. If indicators suggest the economy is moving faster, rates may rise sooner. The Governor also added that the UK economic recovery has momentum, but the slack in the labor market and the weak wage growth has to improve in order to justify a rate increase.
Today, BoE Gov. Mark Carney and other MPC members will give evidence on the August inflation report to the Treasury Select Committee in Parliament. During the testimony we might see further remarks on the timing of the rate hike, following Tuesday’s speech of Gov. Carney. Furthermore, the Bank’s top officials are expected to discuss the heightened uncertainty surrounding the Scottish referendum and to focus on the latest round of forecasts. Among the participants will be the newcomer Nemat Shafik who should shed some light on her sentiment at the MPC board and give her view on the UK’s economy. Another interesting point will be what Martin Weale has to say, since he was one of the two MPC members that voted for a 25bps rate hike at the August BoE policy meeting. The minutes from the MPC meeting held last month showed that Martin Weale and Ian McCafferty dissented from the majority of views that rates should be kept on hold. Their argument was that the continuing fall in unemployment rate combined with a tight labour market was evidence that wage growth would pick up. Nonetheless, with inflation well below their 2% target and wage growth stagnating, the risks from raising rates too early are greater than the risks of waiting. The minutes from the Bank’s latest policy meeting, released on September 17, just a day ahead of Scottish referendum, could give evidence on the prospect of an early rate hike.
As for the indicators, French industrial production for July is anticipated to have fallen, a turnaround from the previous month. From Norway, we get the CPI for August and the forecast is for the inflation rate to remain near the Norges Bank inflation target of 2.5%, but to slow down, which could prove NOK-negative.
In the US, we get the MBA mortgage approvals for the week ended September 5.
Besides BoE Carney and other MPC members we have two more speakers scheduled on Wednesday. ECB Governing council member Ewald Nowotny and ECB Executive board member Yves Mersch will also speak.
The Market
EUR/USD back above 1.2900
EUR/USD rebounded from 1.2860 (S1) and moved higher to trade back above the 1.2900 line. The RSI exited its oversold field, while the MACD bottomed and moved above its trigger line. I can also identify positive divergence between the RSI and the price action. Bearing in mind our momentum signs, I would be cautious of further upside in the near future, maybe to test the psychological line of 1.3000 (R1) as a resistance this time. Nevertheless, on the daily chart, the price structure remains lower highs and lower lows below both the 50- and the 200-day moving averages, thus I still see a negative overall picture. A clear move below 1.2860 (S1), is likely to trigger extensions towards the key support zone of 1.2760 (S2), defined by the lows of March and July 2013.
• Support: 1.2860 (S1), 1.2760 (S2), 1.2660 (S3).
• Resistance: 1.3000 (R1), 1.3100 (R2), 1.3160 (R3).
GBP/USD finds support at 1.6070
GBP/USD continued declining after Monday’s bearish gap, reaching and falling below 1.6120 (a level mentioned in previous comments). However, the pair found support at 1.6070 (S1) and rebounded to trade back above 1.6120. After an extended period within its oversold field, the RSI moved above its 30 line, while the MACD has bottomed and crossed above its signal line. Taking these indicators into account, I cannot rule out the continuation of the rebound, perhaps to test the 1.6260 (R1) zone as a resistance. Nevertheless, taking a look on the daily chart, I will repeat that since Cable is printing lower lows and lower highs below the 80-day exponential moving average, the overall path remains to the downside and I would expect a possible dip below 1.6070 (S1) to pull the trigger for the psychological zone of 1.6000 (S2). I would see any extensions of yesterday’s rebound as a corrective move before sellers take the reins again.
• Support: 1.6070 (S1), 1.6000 (S2), 1.5870 (S3).
• Resistance: 1.6260 (R1), 1.6350 (R2), 1.6460 (R3).
EUR/JPY recovers and moves back above 1.3700
EUR/JPY started recovering on Monday, and yesterday managed to break above 137.00 (resistance turned into support). At the time of writing, the rate is heading towards the resistance line of 137.65 (R1), where an upside break is likely to pave the way towards the 138.25 (R2) barrier. Shifting our attention to our momentum studies, the RSI lies above 50 and is pointing up, while the MACD, already above its signal line, obtained a positive sign. This confirms the recent positive momentum and magnifies the case that the upside leg is likely to continue. However, although I would expect the positive wave to continue, on the daily chart, the rate is still trading within a downside channel, drawn from back the beginning of April. Thus I see the pair in a retracing mode for now. I will reconsider my analysis if buyers are strong enough to exit the channel.
• Support: 137.00 (S1), 136.65 (S2), 136.30 (S3).
• Resistance: 137.65 (R1), 138.25 (R2), 138.45 (R3).
Gold rebounds from slightly below 1250
Gold declined somewhat yesterday, triggering some buy orders marginally below our support line of 1250 (S1) and the lower boundary of the purple downside channel. During the early European morning Wednesday, the precious metal is trading back slightly below the resistance line of 1260 (R1). Given the minor rebound near the lower line of the channel and the fact that I see positive divergence between the RSI and the price action, I would be cautious of a possible upside corrective move in the near future. Nevertheless, as long as the metal is trading within the aforementioned downside channel and below the black line drawn from back at the low of the 30th of December, I consider the overall path to be to the downside.
• Support: 1250 (S1), 1240 (S2), 1230 (S3).
• Resistance: 1260 (R1), 1273 (R2), 1280 (R3).
WTI in a consolidative mode
Crude Oil moved in a consolidative mode yesterday, remaining slightly below our resistance line of 93.50 (R1). I still see a mildly negative outlook, but I believe that a decisive downside violation of 91.60 (S1) is the move that could carry larger bearish extensions. Such a break is likely to open the way for the psychological line of 90.00 (S2). On the daily chart, the price structure remains lower peaks and lower troughs below both the 50- and the 200- day moving averages, but I see positive divergence between the RSI and the price action, while the MACD remains above its trigger line. This supports my view to wait for a clear move below 91.60 (S1) before getting more confident on the downside.
• Support: 91.60 (S1), 90.00 (S2), 87.75 (S3).
• Resistance: 93.50 (R1), 96.00 (R2), 96.70 (R3) .
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
