European Open: The pound perks up ahead of inflation data

Asian Indices:

Australia's ASX 200 index rose by 36.4 points (0.5%) and currently trades at 7,377.50
Japan's Nikkei 225 index has risen by 744.18 points (2.73%) and currently trades at 27,986.29
Hong Kong's Hang Seng index has risen by 378.48 points (1.73%) and currently trades at 22,267.76
China's A50 Index has risen by 2.71 points (0.02%) and currently trades at 13,749.39

UK and Europe:

UK's FTSE 100 futures are currently up 37.5 points (0.51%), the cash market is currently estimated to open at 7,514.22
Euro STOXX 50 futures are currently up 28 points (0.73%), the cash market is currently estimated to open at 3,954.12
Germany's DAX futures are currently up 111 points (0.77%), the cash market is currently estimated to open at 14,584.20

US Futures:

DJI futures are currently up 42 points (0.12%)
S&P 500 futures are currently down -3 points (-0.02%)
Nasdaq 100 futures are currently up 4 points (0.09%)

Talks between Ukraine and Russia are “confrontational” yet “moving forward” according to Zelensky. During an interview with CNN on Tuesday, Putin’s spokesman said that nuclear weapons could be used if Russia were to face an “existential threat”, prompting the Pentagon to condemn the Kremlin.

WTI is back above $110, although a cluster of resistance from 2011 – 2013 highs sit around 110.55 – 114.83. Golf is trading in a tight range around the June high of 1916.53. We expect choppy trade around current levels until we wither see a break above 1950 or daily close below 1900.

Asian equity markets are mostly higher, led by the Tech-heavy Nikkei index as it tracks the Nasdaq 100 to the top of the leader board. Futures markets also positive ahead of today’s European open.

FTSE: Market Internals

The FTSE 100 has rallied for five consecutive days and now erased all of the initial losses sustained at the beginning of this month. At current levels it is on track for a third consecutive bullish week, although 7500 may be a touch nut to crack initially. It was around the opening price of the weekly candle which saw prices plummet at their fastest rate since the pandemic. So, whilst the hourly trend remains bullish and strong, we’d like to see a clear break above 7500 and see it turn it into support before considering fresh longs.

FTSE 350: 4197.47 (0.46%) 22 March 2022

223 (63.53%) stocks advanced and 120 (34.19%) declined
4 stocks rose to a new 52-week high, 1 fell to new lows
36.75% of stocks closed above their 200-day average
100% of stocks closed above their 50-day average
20.8% of stocks closed above their 20-day average

Outperformers:

+ 12.02% - TP ICAP Group PLC (TCAPI.L)
+ 5.76% - Ultra Electronics Holdings PLC (ULE.L)
+ 5.67% - Lancashire Holdings Ltd (LRE.L)

Underperformers:

-14.83% - Trustpilot Group PLC (TRST.L)
-6.32% - Kingfisher PLC (KGF.L)
-5.78% - Diploma PLC (DPLM.L)

UK inflation data set for 07:00 GMT

If it goes the right way (nice and hot), today’s inflation report could refuel speculation for BOE to hike more aggressively. The BOE provided a cautious 25 bps hike last week, which was a blow to anyone expecting a 50-bps hike on the day. Whilst they cited concerns that high energy costs would weigh on consumer spending, they also now see inflation falling below 2% within their forecast horizon. If inflation data today disappoints, then the BOE will likely feel vindicated and the pound could and back some of its gains. Whilst another hot print could rekindle hopes of a 9-0 vote for a hike at their next meeting in May.

How CPI impacts forex

GBP/AUD consolidates near multi-month lows

The cross has endured a very strong leg lower since topping out in January. Although its attempts to break lower have so far failed, as the fall from the 1.8176 high has stalled above the March low and prices are consolidating in a tight range on the daily chart. On this timeframe the reward to risk potential is unfavourable, as the Feb 2021 low is nearby at 1.7689.

If we switch to the four-hour chart we can see there are now four failed attempts to break beneath 1.7730 and momentum is pointing higher ahead of today’s inflation data. Given the rebounds form support and the fact that AUD pairs all looked stretched to the upside (so likely require a pullback), our bias is for a countertrend rally to 1.7848. A decent set of inflation data could help, and perhaps even see it break above1.7850 as part of a deeper retracement against the (arguably mature) downtrend.

Momentum shift on GBP/CAD

We’re also keeping a close eye on GBP/CAD as it looks set to break resistance. We saw a momentum shift yesterday following its false break of 1.6535, and prices went on to break above a bearish channel. Whilst resistance was found at the 1.6724 high, a pullback respected the weekly pivot point and 1.6653 high as support. Overall, it appears a strong bullish trend is forming on the hourly chart and we see the potential for it to rally back to 1.6800.

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