Daily Report: Sterling Higher as Lifted by BoE Carney’s Comments

Sterling opened the week higher as lifted by comments from BoE governor Carney. Talking to Sunday Times regarding the timing of rate hike, Carney noted that “we have to have the confidence that prospective real wages are going to be growing sustainably… We don’t have to wait for the fact of that turn to raise them”. This suggested that the tightening might begin sufficient evidence of sustainable economic growth. On the broader economy Carney indicated that “the expansion is proceeding, momentum is more assured” and “wherever the finish line was in the depths of the crisis, we are much more than halfway toward that finish line now”. While GBP/USD and GBP/JPY recovered, outlook in both pairs remains bearish.

On the data front, UK Rightmove house price dropped -2.9% mom in August, must lower than July’s -0.8% mom. Eurozone trade balance will be released today and is expected to show EUR 14.9b surplus in June. Canada will release international secutrities transactions. US will release NAHB housing market index and is expected to be unchanged at 53 in August.

Looking ahead, the focus of the week will likely be in the US, in particular the annual event of the Jackson Hole symposium beginning on Thursday. With the theme “Reevaluating Labor Market Dynamics”, this year’s conference should provide chance for Fed Chair Yellen to expand her dashboard, how she view the US job market and using what indicators. On Tuesday, the inflation report might show headline CPI easing to 2% yoy in July from 2.1% a month ago. Core inflation probably stayed at 1.9%. July housing starts and permits would also be due on Tuesday. The July FOMC minutes would be released on Wednesday. On Thursday, the Philly Fed survey and flash Markit manufacturing PMI would allow a glimpse of the health of the manufacturing sector.

Elsewhere, the RBA minutes and the BOE minutes would be due on Tuesday and Wednesday respectively. A number of flash PMI data for August would be released on Thursday. In China, the flash manufacturing PMI (by HSBC/Markit) for August probably shows a -0.2 point drop to 51.5. In the Eurozone, the preliminary PMI probably fell -0.4 point to 51.4 in August with deterioration of manufacturing activities seen in Germany, the largest economy in the 18-nation bloc. Germany’s PMI probably dropped to 51.8 in August from 52.4 a month ago. More in The Week Ahead – All On The US: Jackson Hole, CPI, FOMC Minutes…

Daily Pivots: (S1) 0.8009; (P) 0.8021; (R1) 0.8037; More

A temporary top is in place at 0.8035 in EUR/GBP and intraday bias is turned neutral first. But another rise is still expected with 0.7920 minor support intact. As noted before, the larger trend is possibly reversing. Above 0.8035 will extend the rebound from 0.7873 short term bottom to 0.8157 key support turned resistance first. Sustained break of 0.8157 will confirm this bullish case. On the downside, below 0.7920 will dampen this bullish case and turn bias back to the downside for 0.7873 support.

In the bigger picture, choppy decline from 0.8806 is viewed as part of the long term consolidation pattern from 0.9799 (2008 high). With 0.8157 support turned resistance intact, deeper fall could still be seen to 0.7755 (2012 low) and below. In that case, we’ll look for reversal signal again as the cross approaches 0.7693 long term support level. Meanwhile, decisive break of 0.8157 will indicate that fall from 0.8806 is completed and will bring stronger rise back towards 0.8806 resistance.

EUR/GBP 4 Hours Chart

EUR/GBP Daily Chart

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