Risk event for the week starting 14/8/23: UK CPI
There is the whole picture of UK inflation out on Wednesday 16 August: consumer prices, retail prices, and producer prices. This means that in one go we should get a feel for what the Bank of England’s next move could be.
IGTV’s Jeremy Naylor says with the steep rise in inflation last year now starting to abate, there may certainly be the reasonable expectation that the risk may be on the downside. The big question, then, is can sterling breakout of its recent trading channel against the euro?
(Video Transcript)
UK inflation
Now let's take a look at a risk event for the week starting Monday the 14th of August. It's UK inflation out on Wednesday the 16th. There's a whole picture of UK inflation, consumer prices, retail prices and producer prices. This means that in one go we should get a feel for what the Bank of England's next move could be.
The EURO
The steep rise in inflation last year now starting to abate. There may be a reasonable expectation that the risk may be on the down side. The big question then is can Sterling break out of its recent trading channel against the EUR.
EUR/GBP
I want to take a look against the Euro because I think this is an important trade to watch because of the moves we've seen this week in the US dollar on its inflation. Now this is the EUR/GBP so any move up here would be weakness for Sterling. So I'm looking potentially to buy this market.
Now this is a long term chart here and you'll see here I've drawn these little circles around this interesting line at 87.01 where we've seen it act as resistance and support. It is currently resistance. Let's focus in on this most recent move.
European Central Bank
Now assuming that the European Central Bank will continue to raise interest rates and if we do get a pullback in inflation here in the UK my risk is that we could well end up seeing potentially possible downside to these inflation numbers out Wednesday next week. If you are long on this you'll stop those under the underside of this rising line of support. So you'll stop it around about the 85.75 level.
We're currently trading 86.48. My price target is 87.01 and you get a beat of that you're then on the way up to the next line of resistance which is up here which broadly speaking coincides with the 200 day moving average at 87.24. So long Euro Sterling going into the numbers for UK inflation out on Wednesday the 16th of August.
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