GBP CPI just been published at 1.50% down from 1.80% (consensus 1.70%). Very good number all things considered (Housing growth).

In my opinion this is a very muted reaction in the currency markets  I would think GBP would continue its bullish tone again look for 1.6915-25 to hold in GBP and  0.8020-25 to cap EUR/GBP. Downside support for EUR/GBP 0.7950, 0.7920  Cable resistance 1.7010 1.7040. All in all these inflation numbers have spooked the market with a 0.20% reversal in recent gains. While I still feel comfortable that GBP will rally these pullbacks are always “healthy” for the market as it forces the day trader to cut their positions thus lowering the weighted positioning in GBP.

Tonight the Fed starts their monthly FOMC meeting. A $10 bn reduction in the Fed’s asset programme is expected this Wednesday (FOMC meetings last 2 days), which would bring the total amount it buys to $35bn per month. But it is Yellen’s press conference and the latest growth, inflation, and rate forecasts that really matter for markets.

While growth is expected to be revised lower because of the disappointing start to the year, inflation could be revised higher, which may give Yellen more room to indicate she might be willing to tighten earlier than currently expected. The forward curves are expecting the first rate hike from the Fed in May – August 2015, potentially five months after the BOE. Tomorrow’s announcement will give us an insight as to whether Yellen intends to lower this gap.

The market therefore, appears to be expecting a hawkish Fed. The past week has seen buyers of USD’s. Having said that the past 24 hours USD holders have parred their positioning and so if Yellen fails to deliver, and sticks to her uber-dovish mantra, we could see downward pressure in the USD, which could boost both the GBP and EUR.

Have a good day ahead

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