The Dollar Dabbles in Uncertainty
U.S. Inflation Up, Retail Sales Down,
The greenback bounced higher last Wednesday as both the Consumer Price Index and Core CPI posted higher than expected values: a 0.8% change for the former and a 0.9% change for the latter, while the forecast was 0.2% and 0.3% respectively.
U.S. Retail Sales and Core Retail Sales (this version excludes automobiles from the calculation) disappointed and showed that consumer spending decreased, which created a somewhat mixed week for the US Dollar. However, the data for the previous month was revised higher, showing that sales are likely to accelerate in the coming months. Worth noting is that consumers are shifting their spending to services like bars and restaurants, as these sales are more than 116% higher than they were in April 2020, which is most likely because more than a third of the U.S. received the COVID-19 vaccine.
Key Events for the Week Ahead
The first two days of the week are somewhat lacklustre in terms of economic releases but the action picks up Wednesday with the British Consumer Price Index data, scheduled at 6:00 am GMT. This is considered the most important inflation data for the UK economy because it is used by the BoE as the inflation target and usually has a strong impact on the Pound. The expected change is 1.4% (previous 0.7%) and higher numbers usually strengthen the Pound.
Later in the day, at 6:00 pm GMT, the FOMC will release the Minutes of their latest Meeting. The document contains insights into the reasons that determined the latest interest rate decision and usually the impact is notable on the US Dollar, especially if the document contains hints about future rate changes.
Friday, May 21 we take a look at Manufacturing and Services data for both the U.S. and U.K. economies. These are leading indicators of economic health but the impact is usually moderate, especially if the actual numbers are close to the forecast.
Chart Analysis – GBP/USD
After the double bottom created at 1.3700 support, the pair has been on a constant climb and managed to surpass the 50 days Moving Average, a bearish trend line, and the key level at 1.4000. We can also see that price reacted to the lower boundary of the long-term rising channel, which means that this formation will play a role in future price action.
The pair is currently trading just above the 1.4100 mark, after a perfect bounce at 1.4000 support, which shows that the underlying strength belongs to the bulls. If price remains above 1.4000, it is likely to extend past the resistance at 1.4200 during the week but this scenario would be invalidated by a break of the mentioned support. The MACD is moving up and the RSI is above its 50 level, which are both bullish signs.
