Forex Analysis – Trade of the Day: GBP/USD 20th August 2014

UK Consumer Price Index

Yesterday, at GMT 8:30 a.m., the UK’s Office for National Statistics released the year over year Consumer Price Index (CPI) that measures the changes in the price of goods and services acquired by consumers. Since the CPI basically measures the inflation level in the economy, this data is considered as one of the most important leading indicators of the overall economic health.

Last month, the UK’s CPI (y/y) was at 1.9%, and this month the forecast was set at 1.8%. However, the actual figure came out much lower, at 1.6%. The slower pace of inflation will certainly make the policymakers to think hard before increasing the key interest rate to curb it. Hence, it was interpreted as a negative data for the Pound.

US Building Permits

During the afternoon, the US Census Bureau released the Building Permits figure, which is an annualized number of new building permits for the residential housing sector issued during the last month. Since getting a building permit usually indicate future construction work, this data act as a leading indicator of the overall economic activity in the country.

Last month, 0.97 million building permits were issued and this month, analysts were expecting the figure to come out around 1 million. However, the actual figure came out way better than the expectation at 1.05 million, representing a growth of 8.27%.

The better than expected building permits figure suggests an optimistic outlook for the US housing market, at least the supply side of it. Overall, it was a positive news for the US economy.

Trade Recommendation for the GBP/USD

 

NZD/USD graph on 26th august 2014

The GBP/USD has been on a strong down trend since the start of July 2014. The better than expected US Building Permits and worse than expected inflation figure from the UK has further strengthened the prevailing trend.

Yesterday, the GBP/USD managed to close below the 1.6670 support level, first time since April 8, 2014. The pair is likely to find next support around the 1.6580 area. However, given the strong bearish market sentiment, it may fall further. If the pair can close below the 1.6580 level, in that situation, it would suggest a PUT in the GBP/USD.

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About our Forex Analyst: Asif Imtiaz

Asif Imtiaz

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