The British pound strengthened its position against the US dollar after the release of quite encouraging data on inflation in the UK, which turned out to be slightly better than economists' forecasts.
GBP. Today's report from the Office for National Statistics (ONS) shows that the UK's annual consumer price index rose by 0.6% in December 2020, after rising by 0.3% in November. The data beat the forecasts of economists, who had expected growth of 0.5%. Every month, consumer prices increased by 0.3% after falling by 0.1% in November.
As for the core indicator, excluding energy and food, inflation rose by 1.4% from 1.1% in November. The report also indicated that the rate of decline in food prices was the slowest since March 2020.
Data on the growth of house prices in the UK confirms the continued demand in the context of low-interest rates, which the Bank of England plans to leave unchanged for quite a long time. The report shows that home prices rose by 7.6% year-on-year in November 2020 after rising by 5.9% in October. By the way, this is the fastest growth since June 2016. The average house price is £ 250,000. However, in London alone, the average price has already exceeded 500,000 pounds.
As noted above, on this news, the British pound returned to annual highs and tried to break higher for the fourth time in a row. However, this time it was not possible to do this. The bears fought back hard, and the bulls resorted to profit-taking, fearing the statements made by Joe Biden after his inauguration. From a technical point of view, the British pound has every chance of continuing to grow, but this will have to overcome the resistance at the base of the 37th figure. The longer the bulls knock on it, the stronger the breakdown and subsequent growth of the trading instrument will be. In this scenario, we can expect an update of the highs in the area of 1.3750 and 1.3810. A more distant target will be the area of 1.3850. It will be possible to talk about a decline in the pound after the bears return control over the support of 1.3660, which will push the pair lower to the area of 1.3610 and 1.3570.
But before you count on the rapid growth of the pound, you need to take into account the fact that the UK's state customs system has been operating in an emergency mode for the past few weeks, and Brexit threatens to cause new disruptions due to the growth of freight traffic. According to many exporters, it is quite difficult for them to obtain transit documents, with the help of which goods are moved from the UK to the European Union. Let me remind you that the EU is the UK's largest trading partner, accounting for about 43% of its exports in 2019. Before Brexit, the vast majority of goods did not require declaration and filling out transit forms, which allowed them to be sent to the EU as quickly as possible and with minimal problems. Now firms face delays of several days when crossing the border due to incorrect or missing documentation.
EURUSD. As for the European currency, the pressure on it is gradually increasing. President-elect Joe Biden is expected to begin his work in the White House with the winding down of Donald Trump's political programs. Biden plans to make about 15 administrative decisions, starting with the cancellation of the Trump initiative on immigration and the US withdrawal from the Paris Agreement and the World Health Organization, and ending with the suspension of construction of the wall on the border with Mexico.
As for the fundamental statistics, which came out today in the morning on the eurozone economy, it did not help the euro much, as it coincided with analysts' forecasts. According to the report, German producer prices rose in December 2020 for the first time in eleven months. Destatis noted that the producer price index rose by 0.2% in December year-on-year after a sharp decline of 0.5% in November. Economists had forecast a 0.3% drop in the index. Excluding energy, core inflation also rose by 0.3%, while energy prices themselves fell by 0.1%. Compared to November, the growth was just 0.8%.
As for the eurozone, inflation continued to be at a negative level for the fifth month in a row, signaling short-term deflationary sentiment. According to the EU report by Eurostat, the EU-standardised consumer price index fell by 0.3%. A similar decline could be observed in November last year. Core inflation, which does not include food and energy prices, as well as alcohol and tobacco, remained unchanged at 0.2% in December 2020, which fully coincided with the preliminary estimate published in early January.
As for the technical picture of EURUSD, the euro is experiencing problems with growth, as those who want to buy at current levels, even after such a large upward correction, have decreased. Buyers of the euro failed to keep the trading instrument above the range of 1.2130 in the first half of the day, which increased the pressure on the pair. The growth will continue only if the trading day closes above this level, which will open a direct road to the highs of 1.2180 and 1.2225. If the bears manage to keep the EURUSD below the level of 1.2130, the risk of a major fall to the lows of the month in the area of 1.2055 will increase significantly.
