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The pound climbed by almost 1% on Tuesday during the European trading hours, hitting a one-year high against the greenback and extending gains versus the euro after the widely expected UK inflation figures for the month of August came in stronger than expected. With consumer prices rising to a four-year high reached first on May, BOE policymakers will consider seriously whether to deliver a rate hike on Thursday as inflation continues growing above the central bank's target but wages remain subdued.

According to the National Office for Statistics, consumer prices rose by 2.9% on a yearly basis in August, above the forecast of 2.8% and July's mark of 2.6%. Month-on-month, inflation turned positive to 0.6% from a negative 0.1% seen in the previous month, posting the highest increase in six months. The pickup in inflation emerged as households spent more on clothing and footwear ahead of the autumn season, with the sector experiencing the biggest increase in prices in almost 30 years. Particularly, clothing and footwear prices rose by 2.4% m/m and 4.6% y/y. Moreover, the pound's depreciation following the Brexit vote in June 2016, lifted import costs and consequently drove the CPI index higher.

Excluding energy and food items, the yearly core CPI index jumped by 0.3 percentage points to 2.7%, exceeding the expectations for a rise of 2.5%.

In another report, UK producer prices jumped surprisingly higher in August as well due to the exchange rate's weakness and increased fuel costs. The cost of inputs, which are mainly imported, bounced up by 7.6% y/y from a 6.2% gain seen in July (downwardly revised from 6.5%), surpassing the forecast of 7.3%. The monthly rate was up by 1.6%, above the 1.3% expected and the negative 0.2% observed in the previous month (downwardly revised from 0.0%).

Regarding the cost of outputs, this climbed by 0.2 percentage points to 3.4% y/y, surprising analysts who anticipated the rate to increase to 3.1%. The monthly change stood at 0.3 percentage points with the output PPI jumping from 0.1% in July to 0.4%.

Even though the above inflation numbers are seen encouraging a rate hike, as prices continue to hover above the Bank of England's target of 2% since February, BOE policymakers will feel their hands tied when they look at wage growth. British average earnings excluding bonuses grew by 2.1% in June, far below the inflation rate, and are expected to climb slowly to 2.2% in July. Nevertheless, the government's passage of the EU withdrawal bill voted yesterday, which removed a layer of political uncertainty, will probably provide some relief to BOE members who are expected to gather tomorrow to decide on interest rates.

Looking at forex markets, pound/dollar hit a one-year high of 1.3287 before it slipped to 1.3274, while euro/pound extended its losses made earlier touching a fresh one-month low below 90 pence at 0.8981.

Gold prices continued to pull back during the European day Tuesday, extending their losses from Monday, as investors' risk appetite returned with a vengeance. This recent shift in market sentiment may be owed primarily to two factors: the absence of any further escalation of the North Korean crisis, and the fact that Hurricane Irma has been less severe than expected, at least thus far. In brief, some major risks that investors may have anticipated did not actually materialize. Therefore, moving forward, we see the case for the recent price action to continue for a while. Gold and other safe haven assets may retreat further, while riskier assets, such as equities, may continue to recover.

Looking further ahead, even though the latest market action suggests that geopolitical risks have dissipated, we have to sound a note of caution. All it would take to 'spoil the party' would be another unforeseen missile launch from North Korea that escalates tensions again. Something like that is not at all unlikely as North Korea warned the US it will face the "greatest pain" it has ever experienced for leading the effort to impose fresh UN sanctions on the regime.

Gold opened with a negative gap on Monday, and continued trading south on Tuesday to dip slightly below the support (now turned into resistance) barrier of 1325 (R1). Given that the price structure on the 4-hour chart remains higher peaks and higher troughs above the uptrend line taken from the low of the 10th of July, we believe that the short-term outlook is still positive. However, for now we see the case for the latest retreat to continue, perhaps to test the 1315 (S1) support line or the aforementioned uptrend line. Our short-term oscillators support the case for the correction to continue for a while. The RSI edged lower and now looks ready to challenge its 30 line, while the MACD stands below both its zero and trigger lines and points down.

Zooming out to the daily chart, we see that the 1300 (S2) zone acted as the upper bound of the wide range the yellow metal has been trading within since the 31st of January, between that hurdle and the 1200 territory. Its break turned the medium-term outlook positive, evident by the subsequent rally and thus, as long as the latest decline remains limited above that key territory, we would treat it as a corrective phase.

Despite strong Core Machinery Orders in Japan today, signaling strength in their manufacturing sector; UJ continues to move bullish after this weekend's gap up, and this is largely as a result of risk-on sentiments across the risky assets such as Equities. The retracement has started after a V shaped reversal pattern and the intraday/week trend turned to bullish.

Technically, the USD/JPY is still in downtrend but it has a strong recovery, and the gap hasn't been closed yet. 109.25-109.40 is the POC(b) buy zone (order block, W H4, ATR pivot) and 110.45-110.65 is POC(s) sell zone. At this point price is in no man's land. If the price retraces to POC(b) we could see a bounce towards 110.13 and 110.50. If we see the price within the POC(s) then targets are 110.15 and 109.75. Above 110.75 we could see a stronger recovery. Watch for these zones.

• W L3 - Weekly Camarilla Pivot (Weekly Interim Support)
• W H3 - Weekly Camarilla Pivot (Weekly Interim Resistance)
• W H4 - Weekly Camarilla Pivot (Strong Weekly Resistance)
• D H4 - Daily Camarilla Pivot (Very Strong Daily Resistance)
• D L3 - Daily Camarilla Pivot (Daily Support)
• D L4 - Daily H4 Camarilla (Very Strong Daily Support)
• POC - Point Of Confluence (The zone where we expect price to react aka entry zone)

Good day traders! Today we are going to take a better look at GBPUSD price structure.

GBPUSD is trading bullish since end of August and is displaying an impulsive structure. We see current price action trading at the end of wave 3, that is now touching some significant turning point zones. We are talking about Fibonacci ratio of 261.8, where wave 3 can end and a new three-wave move lower into wave 4 can come in play. Support for the following wave 4 can later be around the former wave iv at the 1.3159 level.

GBPUSD, 1H

USD/CHF - 0.9610

Original strategy :

Buy at 0.9480, Target: 0.9580, Stop: 0.9445

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.9550, Target: 0.9650, Stop: 0.9515

Position : -

Target :  -

Stop : -

The greenback extended the rebound from 0.9421 (last week’s low) in line with our bullish expectations, this anticipated rise together with the breach of previous resistance at 0.9595 add credence to our view that low has been formed at 0.9421 and consolidation with upside bias remains for further gain to 0.9635-40 (61.8% Fibonacci retracement of 0.9773-0.9421), however, near term overbought condition would limit upside and reckon resistance at 0.9680 would remain intact.

In view of this, we are looking to reinstate long on dips as 0.9550-55 should limit downside and bring another upmove later. Below 0.9525-30 would defer and risk correction to 0.9500 but downside should be limited and 0.9450-60 would remain intact, bring another rebound later.

The price is trading in the red and seems poised to hit fresh new lows till the end of the day. EUR/GBP plunged and resumed the bearish movement, but now is very close to reach another downside target. Is pressuring the 0.9000 psychological level, a valid breakdown will signal a further drop in the upcoming days. The Cable rallies and should reach new highs as the United Kingdom inflation data have come in better than expected.

The Pound has surged aggressively also versus the Yen and versus greenback, not only versus the Euro. The UK's CPI surged by 2.9% in August, bearing the 2.8% estimate and the 2.6% growth in the former reading period, while the Core CPI rose by 2.7%, exceeding the 2.5% estimate and the 2.4% growth in the former reading period.

The PPI Input, PPI Output, RPI and the HPI indicators have come in better than expected and have boosted the Cable.

The currency pair drops and is pressuring the 0.9000 psychological level. Should drop further and is expected to reach the third warning line (wl3) of the descending pitchfork. Technically it could be attracted by the confluence area formed at the intersection between the warning line (wl3) with the median line (ML) of the major ascending pitchfork and with the lower median line (lml) of the minor ascending pitchfork. The retreat is natural after the false breakout above the 0.9226 static resistance and above the upper median line (UML) of the ascending pitchfork.

A valid breakdown below the mentioned support levels will confirm a drop at least till will reach the lower median line (LML) of the major ascending pitchfork.

EUR/USD has failed to resume the upside movement and now has started another leg lower. I've said in the previous report that it could drop if will stay within the descending pitchfork's body. The false breakout above the 1.2041 level and above the 50% Fibonacci line (ascending dotted line) signaled an exhaustion. The next downside target will be at the median line (ml) of the descending pitchfork, actually could be attracted by the confluence area formed between the median line (ml) of the ascending pitchfork with the median line (ml) of the ascending pitchfork.

USD/CAD increased a little today as the pressure is still high. You can see that has failed to reach the lower median line (lml) of the descending pitchfork and the sliding line (descending dotted line), signaling that has lost the bearish momentum. I've added an ascending pitchfork, a retest of the lower median line (lml) will confirm a rebound on the short term.

The Canadian dollar continues to have a quiet week. Currently, USD/CAD is trading at 1.2148, up 0.31% on the day. On the release front, there are no Canadian releases on the schedule. Later in the day, the US releases JOLTS Jobs Openings, which is expected to slow to 5.96 million. On Wednesday, the US releases PPI, with an estimate of 0.3%.

With only one Canadian event this week, much of this week's movement of USD/CAD will be due to readings from US indicators, notably inflation and retail sales data. Will the Canadian dollar resume its rally? The currency has now put together 4 consecutive winning weeks, and was boosted last week by the Bank of Canada, which caught markets by surprise when it raised the benchmark rate 25 basis points to 1.00%, up from 0.75%. Last week, USD/CAD dropped to a low of 1.2060, its lowest level since May 2015. Will the pair fall below the symbolic 1.20 level this week?

With North Korea celebrating its 69th anniversary of independence, there were concerns that Pyongyang would use the occasion to flex some muscle and test a nuclear bomb or missile. North Korea marked last year's anniversary by exploding its fifth nuclear test. This occasion passed without incident, although the US, along with its allies Japan and South Korea, remain on alert for further provocations from the north. Asian and European stock markets have started the week with solid gains, as investors are displaying a greater appetite for risk. This could translate into gains for risk currencies such as the Canadian dollar.

The US economy has been performing well in the second quarter. Preliminary GDP came in at a sizzling 3.0%, and the labor market remains close to capacity. Still, the Achilles heel of the economy remains stubbornly low inflation levels. Wage pressure has been limited, despite the fact that many businesses cannot fill job openings. Weak inflation has hampered the Fed's plans to raise interest rates a third time this year, and the odds of a December hike have dipped to just 31%, as the markets are increasingly doubtful that the Fed will make a move before next year. Will the inflation picture improve? We could see better numbers this week for August inflation – PPI is expected to improve to 0.3% on Tuesday, and the same gain is forecast for CPI on Wednesday. Both estimates are higher than the July readings.

GBP/USD - 1.3254

Original strategy :

Buy at 1.3125, Target: 1.3225, Stop: 1.3090

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.3175, Target: 1.3275, Stop: 1.3140

Position : -

Target :  -

Stop : -

Cable’s intra-day breach of previous chart resistance at 1.3269 confirms medium term upmove has resumed and bullishness remains for further gain to 1.3290-00, however, loss of near term upward momentum should prevent sharp move beyond 1.3330 and reckon 1.3350-60 (61.8% projection of 1.2909-1.3224 measuring from 1.3161) would hold from here, risk from there has increased for a retreat to take place later. 

In view of this, would not chase this rise at current level and would be prudent to buy cable on subsequent pullback as support at 1/3161 should contain downside and bring another upmove. Below 1.3145-50 would defer and risk correction to 1.3115-20 but downside should be limited and support at 1.3082 (previous resistance) should remain intact.