GBPUSD Breaks 1.3800 As Markets Await Latest US CPI Reading

Okay, very good morning to you. It is Wednesday the 10th of February. Uh, just to give you a heads up, if you're in the Amplify Live community, then later on this evening, the regular kind of weekly fixture for the masterclass at 6 PM London time, we've got two former trainees of Amplify Trading from many years ago, and they're going to be coming back to talk to us about their journey how they got into trading, what they've been up to, kind of lessons learned, tips and advice for any of those new guys starting out, and what they're doing nowadays. And they're still both, I can happily say, actively having success and trading in, in the market. So that's the masterclass for today. So check that out. If you're not part of the community, remember to check out the link in the description of this video. But let's get straight to it and talk about what's going on in markets this morning. So let me flick over my charts to give you a bit of a flavor of the overall cross-asset class mix. And we had a slightly negative close on Wall Street last night. And when I mean slight, I mean by the narrowest of margins, anything from basically down 0.03% in the Dow to 0.1% low in the S&P. So we did snap that 6-day consecutive gain that we had seen in the US equity market and we saw a period of consolidation. So very much in line with what our expectations were when we were looking at markets this time yesterday. During Asia-Pacific hours though, things have bumped up again. You can see here we've had a bit of a breakout in the S&P through its relative high that was shackling some of the price activity from yesterday morning and also late in the US session and then in the early part of the Asia session. Snap out above that and a push up. So the all-time high now printed in the futures in the S&P at 3921.5. Reminder for the Asian markets, given Lunar New Year, things then start to see mass closures across that region as of tomorrow. So worth keeping that in mind in terms of the liquidity for the overnight session and the kind of general then impact for the European morning for tomorrow. Otherwise, the major thing I'm really looking at, again, very similar to yesterday, is the currency market. And we looked at this chart a couple of times, but we had further validation, if you like, of then the dollar moving back below this key area. And we were of the view that this would keep the dollar back then in that kind of negative cycle, if you like, of and continuing this downward trend that we've seen materialize over several months. So irrespective of the kind of January pickup in the dollar that we've had, um, technically having moved back below there, we thought that was going to be significant, and we saw quite a decent move which helped elevate all of the major dollar-based pairs. And if you start extrapolating that out from the technical setup on some of these FX charts, I think it does look quite interesting now in the likes of EURUSD and Cable For EURUSD, this was an area I was looking at yesterday with the rectangle here, and this goes back to kind of some of the January, late January price action. You can see here previous areas of support and resistance, and we came up there pretty early yesterday and then faded, came all the way back down to basically, uh, quite a key area technically, which is around this 121 handle. And then the market just grinded it out as the dollar just weakness kind of persisted. Again, failed to break through into late in the US session until then Asia came in and just generally risk sentiment kind of picked up a little bit and some further dollar weakness ensued. And that's just broken us out above quite a key level now. And when I'm looking at this chart, I was just looking at this trend line as well as we've been moving higher, and that does then coincide with around now the breach of that key level. So I think you've got quite a nice platform here. Now you've got this, um, kind of developing pattern now of dollar weakness, which I don't see anything too much to disrupt that. But technically now you've got a nice firm support area defined by that resistance now being quite firm yesterday, has now broken and should consequently act as quite a nice area of support with that trend line as well. So EURUSD, uh, upside from here, uh, where would I be looking? Well, got to target first of all the, the overnight Asia-Pac highs. They would be just above where we're trading at the moment. And then ultimately I'd be looking more up towards 21.50, which is then 52 is the R1 on the session. That puts us up at those highs seen on the 28th, 29th of Jan, and then a push above there to that prevailing high then up at 121.68 should we get up there today. Cable then, similar type of thing, um, dollar weakness being the catalyst, and therefore we've broken out above a key technical area in cable. This is something we were looking at yesterday on the 90-minute chart, and this was that year-to-date price activity in this trend line which had been acting as a nice kind of area of resistance, and it was doing so again yesterday morning. It until timing-wise we saw a fairly similar development in this currency pair. And we've broken above 138 now, which I do think is obviously meaningful. I've talked about this before on the daily chart. There's not much here now as technical resistance until we get quite a bit higher. And really psychologically, I think 140 has got to be the target here over the medium-term basis. Um, and if we pull back, I think you've got a couple of nice things here to help support this currency pair in the intraday environment. If we did pull back, you can see this 138 is the daily pivot. If you're looking at the futures, it was the prior day's area of resistance turned support, and you've got the trendline support as well. So don't mind the look of, at the moment, cable here to be supported at around 138. And so then to eventually move higher with the idea that, as I said, I think dollar weakness will persist for the time being. There is a risk, of course, to the dollar recent movement, and that is the CPI reading coming later at the US. Um, I'll talk about that in a moment, but I do think that that's going to be quite a defining factor for some of these currency pairs, whether or not they reverse this recent move or we continue the, the trend that's been developing. And with those technical setups now as a nice firm floor for EURUSD and Cable, a softer inflation reading, I think perhaps could be the more interesting of the two outcomes because everyone's a little bit inflation and reflation obsessed at the moment. So if the inflation number is fairly soft, and that's accounting for the fact that there's almost going to be like a, a 10% premium on the fact that there's been such a big move in energy prices that will lift price pressures, then I think that will only fuel further losses in the dollar and help that— help those currency-based pairs. So that's quite a key thing I'd say I'm looking out for today. The other things are looking at the energy market. We had the API crude oil inventories last night, you can see here. But before we get to that, yesterday, yeah, just marked up that, that area that we were, we were looking at in the briefing yesterday. Market responded to that quite nicely and around that 57.30, uh, and then just moved, bounced all the way back up. So it's kind of quite a traditional move we've been seeing of late in recent weeks for WTI crude, which is it kind of pushes itself up. I mean, we've been going consistently higher, it comes down quite quickly, but then it's almost a V-shaped recovery in price, which I think again, even at these levels, goes to show general market appetite, I think, for for oil at the moment. The general enthusiasm coming from multiple different things, whether it's the supportive low rate environment, forthcoming stimulus, developments on vaccine— these are obviously all important catalysts on the demand side for, for oil, with OPEC+ of course just staying and standing pat, at least for the time being, for the next 2 months. So here then, we had Um, APIs last night, you can see there's no real firm direction on the back of that data. If anything, just very choppy. And the reason for that was basically that you had a crude headline drawdown of 3.5 million. Expectations were for just 1 million, so bullish on that figure. However, the gasoline was a build of 4.81 million, the biggest build since April of 2020. So it was slightly offset any bullishness from the crude figure. The fact that gasoline was quite bearish. So overall, when I look at things like WTI crude, I actually don't think— I don't really put too much emphasis on the infantry numbers. I think the market's just assigning higher priority to other things at the moment, like that bigger, broader macro picture, rather than these individual weekly isolated infantry updates. Albeit if you get a big shock outlier in those numbers, sure, it could get a little bit interesting. But even then, I still think it's a relatively temporary move if we did see one. And at the end of the day, then I'd just be looking at this market fairly technically, but then for price to be generally supported around these areas. And then so any aggressive dip might get bought into in that circumstance. Um, Otherwise, in terms of news, it is pretty quiet. So let me just get up to speed on a couple of things. So first of all, on the vaccine front, this is a headline coming out with the, the main story from Bloomberg overnight, and it's probably only going to be received in a more positive fashion. This is the fact that one dose of the Pfizer-BioNTech vaccine offers two-thirds protection against coronavirus. Two doses of the vaccine saw protection rise to about 79% and 84% depending on age. So these numbers, of course, are much lower than the efficacy rates of, say, 90-95% that we were seeing originally. But the point being is that a lot of these rollout strategies are dependent on— and one that's been tactically deployed by the UK very successfully— is just getting everyone the first shot because it gives them an appropriately high enough amount of immunisation against contracting the virus, or at least importantly, the fact that once you've had it, then your chance of hospitalization in ICU or death is basically nil, then that's a good thing to do. And what we've seen before in the likes of AstraZeneca and Oxford and their vaccine is that actually over time, from a 3 to 12 week period, that protection rate actually increases. And then you get topped up with the second and it gets a little bit even better. So this is just another kind of similar narrative to that and goes to show then that, you know, tactically it's probably then the prudent approach to just get as many of these shots out in a first round quickly and then deal with the, the top-ups later. Not forgetting as well that most likely that, you know, this isn't a coronavirus, a COVID-19 thing that's just going to go away after the next year or so, given the ongoing long-lasting nature of this to go through probably several iterations or mutations. Booster shots as well is, is another big thing going forward that is likely going to have to happen over the long term as well. In Italy, there's been a couple of things, nothing that would really spook me, I'd say, to reverse the general optimism over Mario Draghi coming in looking to form a kind of caretaker government for the time being. Italy's Five Star Movement said they will not join a Draghi government at all costs, but denies they're splitting over the matter after they delayed— basically, they postponed an online vote yesterday. They will be voting on his outline program, and they are waiting for Draghi to meet with unions. So they have already come out initially and said they would back Draghi, Um, but I guess this is just a postponement at this point. Should it manifest itself into something more meaningful, which I do not see happening, perhaps then you see a little bit of that, that optimism in Italian assets just fade slightly. But again, I don't see that happening. Um, looking at the calendar then, the major things that we've got coming out today are as follows. Uh, so first of all, let me just get you up to speed with the Chinese CPI data. Year-on-year minus 0.3%, expectations were for flat. The PPI number plus 0.3%, gets expected 0.4. It's the first increase in fact in PPI in a year. Now that is, um, quite meaningful actually. When I look at those CPI numbers, um, you're getting the reverse of what we've had for quite a long period of time. You remember CPI was running away to the upside, and PPI was depressed during the initial phase of the pandemic as manufacturing activity kind of grounded to a halt. But particularly food prices were elevating the consumer price kind of basket, particularly pork prices. And now we're getting a little bit of the opposite. And that does kind of fit then the ongoing kind of narrative coming out of China where economic data has been relatively stable for a period of time. and that's what's helping some of the overall global picture at the moment, particularly on the commodity side of things. Uh, and that PPI number, first increase in the year, is a reflection of that. Um, doesn't have an impact as far as the market open is concerned this morning, and certainly not a consequence as far as the dollar is concerned if you're looking at the FX markets. Um, but having a look elsewhere beyond that, very quiet in the UK European morning. So the emphasis is on this afternoon for for the CPI, which is supposed to show a still tepid pace of inflation. I think it's important to remember people are getting very inflation obsessive at the moment, and rightly so, because we've seen the kind of bond market proxies of future inflation. So things like the 5-year, 5-year breakevens, the TIPS, and things like that. So They have been accelerating to the fastest pace since 2014 as people start to price in the impacts and inevitably that the stimulus is going to have in this current low rate environment. And with the improving vaccine kind of picture overall, should see the economy heat up over the course of the coming months into the second half of the year. 30-year Treasury yields eclipsed 2% this week. That is the first time that they've done that since February of last year, so around 12 months. Um, but again, as I said, the— where we're at at the moment is this figure. Um, the year-on-year is expected at 1.5%, the core year-on-year expected at the same figure. Um, a couple of things to be aware of here: an upside surprise will likely only fuel flames of some of this recent, um, views that markets have had about future inflation The figure in itself is likely to be buoyed by a 10% increase in gasoline prices, but I do think that the market is more aligned by the rate of price pressures over the coming months, i.e., putting more emphasis on what does the speed and trajectory of this assumed increase in inflation look like, rather than today's number being a silver bullet and all of a sudden the markets start going frenetic. I definitely don't think the latter is going to happen. And as I said earlier, I actually think that perhaps a more interesting impact value you might see in the market today at 1:30 is what if that inflation metric is actually a little bit soft? So irrespective of the figure being lifted by 10% increase in gasoline prices, the underlying stripping that out, if the inflation pressures are very still coming from an incredibly low base or lower materializes than what was expected, well then all the further away we are from this kind of tightening cycle or reflation trade being warranted. And does that send— consequently see a bit of a pullback from some of those recent moves? If that did happen, I'd see that probably as, as a dollar weaker, equity positive, T-note positive reaction effect. Should it materialize in that way. So 1:30 is quite key. You've then got the oil inventory numbers coming out, the DOE, to follow up on the APIs at the regular time of 3:30. And then there is a couple of speakers. So just a quick word on this. First of all, they're all happening in the afternoon, and it's 3 kind of heads of the central banks: Lagarde, Bailey, and Jerome Powell. Christine Lagarde speaking at The Economist So that'll be at 1. And then just a quick word on, on Andrew Bailey and Jerome Powell. So Bailey is speaking at the Mansion House, text released at 5 PM. So for any of those new to markets, this is a fairly notorious event, happens on a yearly basis, and it can act as a bit of a platform in a very similar fashion to Powell speaking at the Economic Club of New York. So outside of the uniform interest rate meetings that they have throughout the year. Both these events have in the past acted as a potential opportunity for the central bank governor to say something noteworthy, whether about the current economy or future monetary policy. Do I see that happening today? Well, no, I don't. And the rationale behind that is mainly based on the fact that these central banks have only very recently communicated their, their their kind of update, their official update of what their view is on markets. Bank of England being just a few days ago last week with their latest projection. So there's really no need for him to update. Nothing's really changed since that point. There is a bit of pressure on Jerome Powell, I would say, coming. The FT were talking about this in an article this morning which I shared on the Amplify Live Twitter account, and what it's talking about is the fact that the Fed at the moment are in ultra-loose monetary policy mindset, almost further amplified by the fact you've got Janet Yellen now at the Treasury. But the idea here is that, look, in some shape or form, not quite the $1.9 trillion perhaps, but further US stimulus is coming, and the vaccine rollout probably will accelerate. And so therefore economic conditions are only going to improve based on that materializing. And so at some point, Powell's got to update what he thinks of the knock-on ramifications are in his economic view and subsequent policy reaction. And that is going to be an interesting period when he does that, because obviously there's a, um, you know, removal of the punch bowl, as they say, is what can be very disruptive, particularly with the market being a little frothy at the moment in terms of equities being particularly elevated. So something to think about. All right, gonna leave it at that, let you guys crack on. Wish you a good day ahead, and I will see you in the Discord room on Amplify Live. Thanks very much.