Charts: TradingView

Economic Review

Early European hours observed UK inflation data hit the wires. Inflation is now in excess of five times the Bank of England’s (BoE) target; the Office for National Statistics (ONS) revealed that the Consumer Prices Index (CPI) jumped 11.1%, clocking a 41-year pinnacle. This is up from the 10.1% increase in September. Month-on-month CPI inflation also increased by 2.0%, up from September’s 0.5% increase. In terms of the year-on-year core readings (excluding food, energy, alcohol and tobacco), the release recorded a 6.5% rise, identical to September’s increase. This hotter-than-expected inflation reading, of course, emphasises the possibility of further interest rate hikes by the BoE (next meeting is on 15^th December). Note that the central bank raised the Bank Rate by 75 basis points on 3^rd November to 3.0%. According to the futures markets, there is currently a 53.6% chance the BoE hikes by 50 basis points at the next meeting, with a 46.4% probability of another 75 basis-point hike.

The ONS said:

In October 2022, households are paying, on average, 88.9% more for their electricity, gas, and other fuels than they were paying a year ago. Domestic gas prices have seen the largest increase, with prices in October 2022 being more than double the price a year earlier.

Today, markets are poised for UK Chancellor Jeremy Hunt to deliver the Autumn budget to Parliament at 12:30 pm GMT. The package is widely expected to reveal spending cuts and tax increases in an attempt to fill the £60bn fiscal black hole.

(UK Annual Inflation Rate)

Over in Canada, released by Statistics Canada at 1:30 pm GMT, consumer prices, according to the Consumer Prices Index (CPI), matched September’s increase of 6.9% in October, on a year-over-year basis. Core annual inflation for October increased 5.3% versus a rise of 5.4% in September.

Finally, US retail sales, a measure used to gauge consumer spending, rose 1.3% on a month-over-month basis in October, and 8.3% year on year (versus 8.6% the prior year [October 2021]).

GBP/USD Working with $1.19

Short-term price action on the GBP/USD currency pair shows $1.19 came under siege in London trading on Wednesday, drawing the unit to a session high of $1.1942 (and creating a bull trap). To the downside, $1.18 calls for attention, followed by Quasimodo support coming in at $1.1744, whereas north of yesterday’s session high casts light on H1 resistance from $1.2009.

For those who read Wednesday’s report, you may recall the following text in regards to the weekly and daily timeframes (italics):

Weekly resistance is a standout technical observation at $1.1990, sheltered just south of another weekly resistance base at $1.2263. You will also note on the weekly timeframe that despite the currency pair staging a rather impressive pullback of nearly 16% from the record low of $1.0357, a downside bias remains evident (since early 2021).   

From the daily timeframe, additional resistance is seen nearby around $1.2052, made up of a 50% retracement from $1.2052, a 100% projection at $1.2073 and a 1.272% Fibonacci projection at $1.2078 (1.272 is derived from the square root of 1.618, which is the inverse of 0.618). You will also acknowledge that just north of the noted resistance structure, a 200-day simple moving average is seen at $1.2238. In terms of the daily chart’s relative strength index (RSI), we have seen the indicator’s value test the upper limit of resistance between 60.00 and 50.00. Venturing above here could lead to overbought conditions materialising.

Given the current weekly resistance at $1.1990, chart studies suggest a strong ceiling around the $1.20 figure on the H1 timeframe should we break above $1.19 (holding at the time of writing).

XAU/USD Gold Welcomes Resistance

Following last week’s 5.4% run higher, the yellow metal has since crossed swords with resistance on the daily timeframe between $1,789 and $1,778 (composed of two Fibonacci ratios and a Quasimodo resistance at $1,788). Also demanding attention is the 200-day simple moving average ($1,802). I wrote about this in recent analysis and highlighted the fact that the yellow metal has traded beneath this dynamic average since June of this year. A rejection from the noted resistance turns the radar to support at $1,725, accompanied by a decision point at $1,701-1,722.

I also underlined in recent analysis that although price has breached trendline resistance (etched from the high $2,070), I would want to see the unit close beyond 10^th August high at $1,807 to validate a trend reversal in terms of price action. Aiding current resistance, nonetheless, the relative strength index (RSI) is showing signs of levelling off within overbought space, ahead of a channel resistance, taken from the high 59.51.

The area made of price resistance between $1,789 and $1,778 and the 200-day simple moving average, helped by an RSI overbought signal and nearby RSI channel resistance, sellers may continue to reject the said price structure in favour of targeting support around the $1,725 neighbourhood.

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