WEAK EUROPEAN AND UK INFLATION NUMBERS PUSH GREENBACK HIGHER

The Great Britain Pound declined after the latest consumer price numbers from the UK. The numbers showed that the CPI increased at an annualized rate of 2.4% in September. This was lower than the 2.6% that traders were expecting and the 2.7% growth for August. The decline in consumer prices was broad-based. The retail price index too fell to 3.3% in September from a 3.5% increase in August. The numbers came a day after data from ONS showed that wages had gained to the highest level since the financial crisis. Therefore, today’s CPI numbers show that the wage increase has not led to increased inflation. At the same time, data from ONS showed that house prices growth had hit a five-year low. This slowdown was attributed to the cooling market in the south and east of England.

The euro was little moved against the USD after the inflation numbers were released. The numbers showed that consumer prices in September had risen by an annualized rate of 0.9%. This was in line with what investors were anticipating. On a MoM basis, the CPI rose by 0.5%, which was in line with expectations but higher than the CPI in August. Still, EU’s CPI has been rising this year. In February, data showed that the CPI in January was at 1.3%. The continued improvement, albeit slowly, makes the case of an interest rate hike in 2019.

Asian and European markets were largely positive today after the impressive performance by American equities yesterday. In Asia, the Shanghai composite, Nikkei, and Hang Seng ended the day 15, 291, and 17 points higher. In Europe, Stoxx and DAX declined by 5 and 50 points respectively while France’s CAC and UK’s FTSE gained by 5 and 7 points respectively. Wall Street pointed to a lower open with the Dow and Nasdaq falling by 90 and 30 points respectively. These declines come ahead of major earnings from companies like Abbott Labs and eBay.

The USD strengthened even after the housing numbers disappointed. This was mostly because of the weakening of its peer currencies. The building permits in September rose to 1.241M which was lower than the 1.278M that traders were expecting. On a MoM basis, this was a decline of minus 0.6 percent. It was significantly lower than the 2.1% that traders were expecting. The number has been declining since March this year. The housing starts rose to 1.201M, which was worse than the expected 1.220M. On a MoM basis, the starts were lower by minus 5.3%.

GBP/USD

In August, through late September, the GBP/USD pair rose from a low of 1.2660 to a high of 1.3300. In the first week of October, the pair fell to an MTD low of 1.2920. After yesterday’s rally, the pair declined today to an intraday low of 1.3128 after the disappointing inflation numbers. As shown in the chart below, the path of least resistance for the pair is likely downwards. If it does, it will likely test the important support of 1.3082.

GER30

The GER30 index started a sharp decline in late September. This was similar to other indices from the developed countries. It managed to decline from €12,455 to a low of €11,390 on Thursday last week. This week, the index jumped to a high of €11,840 and today it eased a bit after the EU inflation numbers. The RSI declined from yesterday’s high of 71 to the current 53. The ADX has fallen from 69 to the current 42. Tomorrow’s movement on the DAX will depend on the performance of Wall Street today. There is a likelihood that it will resume the upward trend as trade worries wane.

EUR/USD

The EUR/USD pair declined as the euro weakened against the USD. It reached an intraday low of 1.1520, which was the lowest level since Friday last week. On the four-hour chart, the current decline appears like it is a downward breakout. However, this could be a false downward breakout as evidenced by the ADX, which is currently at 21 and the Money Flow Index (MFI) which is currently at 40. If it continues the downward momentum, traders should watch out for the 1.1460 support.