UK CPI due tomorrow
The February UK CPI will be due out tomorrow. Typically, January is a negative month for prices as post Christmas sales lower prices. February is a rebound month as prices move back higher.
For example,:
- In 2014, January CPI fell by -0.6% while February increased by +0.5%.
- In 2013, the January decline was -0.5% with a +0.7% increase in February.
- In 2012, the January decline was -0.5% with a +0.6% increase in February.
Last month the headline CPI fell by -0.9%. Will the UK get that oversized rebound in February to make up for the January decline? Not likely.
The expectation is for only a +0.3% rise. This is not only less than the January increase but less than the February 2014 increase (+0.5%) it is replacing. That is not good for the math for the YoY numbers.
As a result, the YoY is expected to decline to +0.1% from +0.3% and make the hope for a rise in inflation toward the 2% target more difficult (if not impossible in 2015). The low inflation reading should keep a lid on the GBPUSD and on the BOE as well.
Of course, a higher number would derail that idea and a generally weaker USD can have an impact as well.
What would be more bearish technically? What would be more bullish technically?
Looking at the hourly chart, the 200 hour MA (green line in the chart above) held support today and it will remain a key technical borderline on the downside. The 200 day moving average, currently comes in at 1.4839. Not far away from that level is the 100 hour moving average (blue line in the chart above)at 1.4825. If the bearish bias it to reignite, this area would need to be broken.
On the topside, the 61.8% retracement of the move down from the post–FOMC meeting high at 1.49816 and the recent highs at 1.4988 are the key borderlines that need to be solicit more buying.
With the current price above the 200 and 100 hour moving averages is a more bullish technically. Traders who bought the dip against the 200 hour MA (green line) in the early London session are in control, but they do need more. Specifically. they want to see the follow through above the 1.4981-88 area. The problem is it might require taking the position through the event risk and if that number squeaks to 0.0% or even -0.1%, it should be enough to push the price through support in a hurry. So event risk is indeed elevated.
For traders without a position, and not looking to take on the event risk, sit tight. IF the price can stay between these "goal posts", it will allow to trade a breakout of the extremes, if stronger or weaker than expectations.
PS. US CPI will also be released tomorrow with the expectation for MoM rising by +0.2% vs -0.7% in January. Although the YoY is expected to show a negative reading of -0.1% , the ex food and energy is expected to rise to +1.7% from +1.6%. The UK core reading is expected to decline to +1.3% from +1.4%. I would think the UK inflation will carry more weight as the Fed is more likely to tighten in 2015.