U.K. consumer price growth is expected to slow to 1.3% from 1.6% on an annualized basis despite forecasts for a 0.3% gain during the month of September. Inflation has steadily fallen in Europe’s third largest economy but prices have remained sticky at a time when the Euro-Zone, U.S., Japan and Switzerland has experience negative prices.
[B]OCT 13 U.K. CPI (SEP) (GMT 04:30: 08:30 EDT) [/B]
[B]Expected: 1.3%
Previous: 1.6% [/B]
[B]Fundamental Outlook[/B]
U.K. consumer price growth is expected to slow to 1.3% from 1.6% on an annualized basis despite forecasts for a 0.3% gain during the month of September. Inflation has steadily fallen in Europe’s third largest economy but prices have remained sticky at a time when the Euro-Zone, U.S., Japan and Switzerland has experience negative prices. Therefore, if we see prices fall less than expected as in August, economist forecast of a trough of 1.0% may be in jeopardy which would eliminate deflation risks. However, with energy costs on the rise we may see inflation concerns emerge as the BoE’s 2.0% target may be threatened in early 2010. This could raise interest rate expectations and lead to sterling support. The central bank has continues to maintain stimulus efforts and depending on next month’s quarterly inflation report could take additional measures. Indeed, Prime Minster Gordon Broun in an interview today stated that to remove stimulus at this time would jeopardize a recovery and put Britain in a very deep recession. A larger than expected decline in prices would open the door for more quantitative easing which could weigh on the pound and validate the bearish technical outlook.
[B]Technical Outlook [/B]
[B]British Pound / US Dollar Daily Bars[/B]
The GBPUSD has traded below its September low but the decline may have completed 5 waves down from 1.6746. An objective remains 1.5300 (just above the 161.8% extension) but a corrective rally may delay a decline to that level. In any case, a bearish bias is warranted against the line extended from the September and October 8th highs. This line is at 1.6060 today and decreases 41 pips per day. 1.5930 is potential short term resistance.
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