FX Update

UK economy slides back to deflation after figures released yesterday indicates inflation is back at -0.1% which is below expectation of 0%. This is bad for the UK economy but good for consumers because for goods will likely remain low. GBP was strongly hit by this figures at the currency dropped against all major currency, GBPUSD dropped all the way from 1.5384 to 1.5200. Eurgbp also saw a massive breakout yesterday, the currency rallied to 6 months high at 0.7490  on the back of weak UK inflation data. We saw a pull back this morning after prices touched 16 Moving Average on the monthly chart. This morning, GBPUSD has bounced off the lows now trading at 1.531 in anticipation for a strong average earning data which is expected at 3.1%. If this figure comes as expected, we might see some strength on GBP which could take price back to 1.5384. A disappointing figure could return prices back to 1.5200.

Later in the day, the market is expecting some data from the US economy: core retail sales (MoM), retail sales and PPI. All these data are expected to come out bad; below the previous month. For example, core retail sales are expected at -0.1% (prev 0.1%), PPI is expected at -0.2% (prev 0.0%) and retail sales are expected at 0.2% (prev 0.2%). If all these data comes just as forecast, then we might see further sell off on USD across the board and all currencies against USD will rally. The market seems to be pricing in already, we could see all emerging currencies getting stronger also commodities like gold is on a rally ahead of the data, currently at $1173 an ounce. If the data should come stronger by beating analyst estimate, the market will see a massive rally on USD and commodities as well as emerging market currencies are likely to be under pressure.