The British pound which had better than expected December UK jobless claimant change to -4.1k from -3.2k while the market was waiting for just -1.4k could keep most of its recent gains trading around 1.6 psychological level versus the greenback which had mixed housing data today by better than expected building permits rising to .635m in December and they were expected to be .560m and lower than expected housing starts have come at just .529m while the market was waiting for .555m.
The cable is still well-supported by strong inflation figures of December as UK CPI has reached 3.7% yearly while it was expected to be just 3.3% while the monthly figure has been 1% and it was expected to be just .7% after UK Jan Right move housing prices index has risen up by .3% after falling in December by 3% and RICS Housing prices balance had improved to -39 in December 2010 from -44 in November while it was expected to be just -42 to be in line with the recent MPC members meeting last week which has shown their worrying about inflation as UK CPI is still well above its 2% target and also above 3% in the recent months and it can accelerate further to 4% as we have seen UK CPI of December coming at 3.7% which can show that the UK economy is exposed to stagflation risks this year as it has become ruled out to have a new added funds to the BOE 200b Stg buying bonds plan, if there is a new tightening action from the MPC to come for fighting the inflation upside risks as Andrew Sentence the only MPC voting member who has called for hiking the interest rate by 25 basis points in their last meeting while the economy is not yet at the shape which does not need of its easing measures.
The cable rose to 1.6058 after the inflation data but it has retraced some of its recent gains to 1.594 and it is still expected to find intermediate support at 1.5835 where it has tried to form a new base for ascending up and breaking down this level can expose it to fall further to 1.57 then 1.558 while the main supporting level is now at 1.534 where it was its recent bottom while the next resisting level can be at 1.6092 then its recent main top which has been formed in the beginning of last November at 1.6296 when the greenback was under pressure from the Fed's decision to add another 600b$ in another step of its QE policy for stimulating the economic growth in US.
The single currency is still underpinned by the recent announced Russian consideration of buying Spanish debts which came after Japan had given a pledge for buying European bonds following China for restoring confidence in the European debt market.
The single currency could come over 1.35 for a while before easing back again to 1.345 versus the greenback as the market uncertainty about this week EU Financial ministers meeting in Brussels has been cleared out by their announcement about studying adding more funds to the EU and the IMF package for lending the EU debt ailing economies and ruling banking stress tests as in US for giving better transparent view to the markets about the current EU banking sector crediting position.
The single currency should face next important resistance at 1.3785 in case of having the ability of footing over 1.35 after it could get over 1.34 supported by better than expected EU ZEW economic sentiment of January could reach 25.4 and the markets were waiting for 17.3 from 15.5 in December while the next supporting level is expected to be at 1.326 where it has dropped to this week and this level can be followed by 1.309 and then the recent bottom of the pair at 1.287 level.
God Willing, it is important now to wait for the Chinese inflation to ease back to 4.7% after reaching 28 months high in November at 5.1% trigging PBOC to hike the interest rate 25 basis points and to request for reducing the banking sector reserved amount of liquidity available for lending by another .5% after cutting it 6 times last year and it's important too to wait for its Q4 GDP which is expected to get down from 9.6% in the third quarter to 9.4% yearly while its industrial productions are expected to up by13.6% in December from 13.3% in November and also its yearly retail sales to be up y/y by 18.9% from 18.7% in November.
We should wait too for the EU session to read in the ECB monthly report after its recent appreciation of inflation building up risks and after that we need to wait for the US session for having the weekly initial jobless claim which is forecasted to be 425k from strong rising to 445k a weak earlier which has risen strongly and also US existing homes sales of December to be up monthly by 4.5% from 5.6% in November and the US leading indicator of December to be .7% from 1.1% in November and also Philadelphia Fed manufacturing Survey to be 22.3 from 24.3 in December.
Kind Regards
FX Consultant
Walid Salah El Din
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