Sterling shrugs off CPI data

GBP/USD is trading higher even though UK CPI is at a record low, and EUR/USD remains resilient in the face of Greek uncertainty.

Canary Wharf
Source: Bloomberg

Sterling eyes $1.54

Inflation in the UK dropped to 0.3% in January, and even though the figure is the lowest number on record GBP/USD actually jumped higher on the back of the news. The reading in December was 0.5% and the market was expecting a reading of 0.4%, but traders know the weak number is largely down to low oil prices rather than poor demand in the British economy.

Mark Carney previously warned about the possibility of deflation hitting the UK, but until the CPI swings to negative territory the market won’t take his comments about an interest rate cut seriously.

GBP/USD is encountering resistance at $1.54 and if this level is held the immediate target will be the 100-hour moving average of $1.5345; a move through this level would bring $1.53 into sight. If $1.54 is cleared to the upside, then the 100-day moving average at $1.5515 will be the target.

Euro breaks $1.14

EUR/USD is back above $1.14 as Germany economic sentiment jumped from 48.4 in January to 53 in February. The German economy is not an accurate reflection of the eurozone’s financial health, but if investor confidence isn’t high in Germany the rest of the region would be in trouble.

Discussions over Greek debt are still far from resolved, and the latest round of talks ended abruptly without a deal being struck.  As I stated previously, Greece has been in many crunch talks over the years and eventually a compromised has been reached. This time the Greek finance minister Yanis Varoufakis is taking a particularly tough stance, but the deadline isn’t until 28 February.

The $1.14 level is providing support and if the level is held the upside resistance at $1.15 will be brought into play. If $1.14 is punctured, then the next level of support will be $1.1340, and a move through that level would make $1.13 the target.

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