Housing Prices Rebounding Adds A Positive Fundamental Factor to GBP
Data to start the week showed UK's Nationwide house price index climbed by 4.1% month over month, with the typical asking price for a home climbed to £233,252. That was the best reading in nearly 10 years. The report said that the surprisingly strong spring price pump was triggered by rising seller confidence due to a lack of homes for sales in more affluent areas.
Above you can see the Nationwide house price index over the last 2 year,with a rebound in prices to start the year. That is a positive fundamental development for the UK economy.
Retail Sales Show Improvement in Domestic Demand
Last week we saw UK retail sales rise 0.9% on the month beating expectations of 0.3% decline, which implied that consumer demand and spending rebounded to begin the first quarter. We previewed the release and argued that a negative reading as had been expected could weigh on the GBP. With the surprise release, the trend over the last 5 months looks much healthier and bodes well for expectations around first quarter GDP. A positive print in the 1st quarter would mean that the UK would skirt a technical recession after having its economy contracting the fourth quarter.
We also saw that consumer confidence increased last month showing that despite a week labor market steep decline struck thousand 11 and confidence have also rebound.
BOE Ups its Inflation Forecast, Lessening Chance of More QE
Another key take away was last week's BOE quarterly Inflation Report in which the central bank lifted its medium-term inflation forecast to 1.8%, close to its 2% goal, and a level that was higher than expected. That would imply that economic data would have to deteriorate further for the central bank to conduct further rounds of quantitative easing after having expended its bond purchase program by £50 billion two weeks ago.
We get the latest BOE meeting minutes later this week which should provide further clues as the the rationale behind the most recent move as well as what it would take for the BOE to decide to increase its bond purchase program yet again.
With Fundamental Positives Can GBP/USD Break Through Early February Highs to Target 1.6090?
The GBP/USD pair has worked itself above a downward sloping resistance trendline, held above the 4-hour 200-ema, and has seen a bullish crossover between its 21 and 55 ema in that timeframe. The pair set up an intra-day high at 1.5880 and a break there with target the highs from two weeks ago at 1.5930.
Looking at the pair from the daily timeframe, we approach the 200-daily SMA near 1.59, as well as the beforementioend 2-week high at 1.5930. That corresponds with the highs fro the pair this year, and is a 50% retracement of the full downswing from a mid-August to mid-January. It would therefore be a key test, with a breach there opening up further upside targets at the 61.8% retracement near 1.6080, which would correspond with the highs seen in early November.
What would undermine this analysis would be if UK economic data cools off and shows deterioration - we will have to await the UK manufacturing and services PMI's coming in the first week of March as the next key reports. What could help the analysis would be if US economic data weakens over the next few weeks, opening up the doors to more QE from the FOMC - a USD negative developments.
Nick Nasad is an analyst, educator, and trader; and one of the main contributors to FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.