Inflation data from the UK shows that overall consumer prices only rose by 1.5% in October compared to a year ago. The headline CPI figure missed expectations which called for a 1.6% uptick in prices. This is the lowest that level that UK inflation has been in the past three years. A closer look at the report shows that the lower energy price cap drove utility prices down.
Meanwhile, the core CPI report which excludes big ticket purchases and volatile items like petrol and energy, posted a 1.7% increase as expected. Often this number is considered more important because it disregards outliers. This is probably why the pound was able to hold its ground against most of its counterparts.
As for producer prices, there was a 1.3% contraction in the prices of raw materials that manufacturers use to produce goods. This number is lower than the negative 1.1% forecast. The government also reported a 1.3% increase in the selling prices of homes which beat consensus by 0.1%.
The pound has been able hang on to support levels at the wake of these reports. The inverse head and shoulders pattern I pointed out earlier this morning on GBPUSD remains valid with the currency pair still trading within the 100 SMA and 200 SMA on the hourly chart.
Meanwhile, EURGBP formed a shooting star on the hourly time frame. This candlestick pattern is usually interpreted as a bearish signal because the long shadow above the candle’s open price indicates the lack of commitment from buyers to push prices higher. Using the Fibonacci retracement candle to connect yesterday’s high to swing low, we can see that the currency pair looks like it only retraced some of its losses from Tuesday’s trading.
There are no more reports from the euro zone and the UK today. This probably means that the currency pair will take its cue from news on the political front. According to the latest polls, the Conservatives lead by 14 points over Labour. This follows after Nigel Farage’s announcement that he would withdraw Brexit party from candidates from Tory-held seats.
If the pound finds enough buyers in today’s trading, we could see EURGBP test the next support level at 0.8500 where it bottomed in March 2019. On the other hand, should the pound lose steam, the next resistance level is at 0.8600 where the currency pair establish intraday highs yesterday.