UK inflation remains stickier than the Bank of England was hoping for, and more rate hikes look likely. This morning the Office of National Statistics made public the inflation data for April which read a decline from 10.1% to 8.7%. The drop in inflation is well received but remains higher than markets were expecting. Analysts initially expected the inflation rate to decline to 8.2%, significantly lower than the final figure. The Bank of England Governor has also criticized food producers and supermarkets clinging to profit margins. However, the Core Consumer Price data excludes food prices, which rose from 6.2% to 6.8%. Economists were initially expecting the core inflation data to remain at 6.2%.
As a result, the Pound's value is increasing against all competitors, including the Euro, Dollar and Japanese Yen. The strongest bullish price movement is currently being seen against the Japanese Yen, which is declining against most currencies. Market participants anticipating more interest hikes is the main driver behind the Pound’s price action. Furthermore, the US Dollar Index is trading slightly lower this morning but saw substantial gains the day before. The US Dollar Index has formed a strong resistance level of 103.60, which traders will monitor.
Investors will seek further clarity from two central banks throughout the day. The Bank of England governor will speak at two events this afternoon. In addition to this, the Federal Open Market Committee will release its Meeting Minutes this evening. Investors hope the report will provide further information on whether the Fed has discussed the potential for further hikes. Indications of further hikes can support the Dollar but will pressure the US Stock market.
NASDAQ - Records Steepest May Decline
The price of the NASDAQ experienced its most significant decline yesterday for May. The index declined by 1.45%, and investors should note the global stock market saw a decrease, not solely the NASDAQ. The NASDAQ is also forming a lower low for the first time since the first week of May. Due to the lower low, the price no longer trades within a bullish trend pattern.
The price nearly drops into the reversion zone when monitoring regression channels and trading clouds. This can indicate a potential downward trend or reverting price range. Currently, the RSI is forming lower lows below 50.00, again indicating a downward price movement. However, investors will ideally look for a price to break out below $13,650 to confirm the downward price momentum. Lastly, the price has now dropped below larger moving averages, such as the 100-moving average, for the first time since the first week of May.
Both fundamental and technical factors are influencing the downward price movement. Technical aspects are related to the high price of the instrument and previous resistance levels, which have made investors uneasy as earnings season comes close to an end. In addition, investors are also anticipating a slightly higher interest rate in the future from the leading three global central banks. Nonetheless, investors should also note, as mentioned each day this week, the price movement will largely also be affected by NVIDIA's earnings tonight. NVIDIA is scheduled to release its quarterly earnings report after the market closes. NVIDIA is in the top 5 most influential stocks for the NASDAQ and can drive the price depending on the final figures.
EUR/USD - Investors Focus on Three Economic Releases
The EUR/USD has been forming a downward trend pattern on the 4-hour timeframe since the 9th of May but has now failed to create a lower low. The exchange price has now found support at the previous support level from May 19th, forming a “double bottom” pattern. For this reason, traders are contemplating whether the 3-week trend may now lose momentum or if the Dollar can break the support level and continue the trend. This will largely depend on three major events; the FOMC Meeting Minutes, tomorrow’s Prelim GDP, and Friday’s PCE Price Index.
If the above economic events point towards a resilient economy, hawkish committee, and sticky inflation, the US Dollar may increase in value. However, investors will also be monitoring the debt ceiling negotiations. According to reports, republics are still requesting that the federal government lowers spending, while the Democrats are asking that spending is frozen. Most economists believe that negotiations will end in an agreement.
Lastly, it is essential that investors also consider monitoring the performance of the Euro against the market. Ideally, investors look for a strengthening currency against a weakening currency. The Euro so far this morning is increasing in value against most competitors.
Summary:
- UK inflation declines but remains much higher than economists have previously predicted. Core UK inflation unexpectedly increases.
- Investors turn to the Bank of England Governor for clarity on how the Bank of England is likely to react. Investors expect further interest rate hikes.
- The price of the NASDAQ experienced its most significant decline yesterday for May. The index declined by 1.45%, and investors should note the global stocks saw a decrease, not solely the NASDAQ.
- The EUR/USD has been forming a downward trend pattern on the 4-hour timeframe since the 9th of May but recently could not form a lower low.
