Macroeconomic overview

Sterling hit a three-week high against the EUR on Thursday after data showed Britain’s economy kept its robust momentum in the final three months of 2016, again wrong-footing expectations that the vote for Brexit would rapidly take a toll on growth.

British GDP rose at a quarterly rate of 0.6% between October and December, Britain’s Office for National Statistics said, maintaining the above-average pace seen in the first three months after June’s Brexit referendum. Compared with a year earlier, the economy grew by 2.2%, again slightly faster than expected.

Britain was probably one of last year’s fastest-growing major advanced economies, and there are some signs this will continue into early 2017, with the Confederation of British Industry reporting strong orders for manufacturers in January.

Bank of England Governor Mark Carney has warned that growth has become more reliant on consumer spending. Unbalanced growth could prove a problem for 2017, when the weaker currency is forecast to make itself felt through higher inflation, curbing consumers’ spending power and hitting businesses with higher costs.

In November the BoE forecast growth would slow to 1.4% this year as inflation exceeds 2.7% by the end of the year. The Bank is widely expected to revise its forecast for inflation up further next week.

Prime Minister Theresa May has said she plans to launch formal divorce talks between Britain and the EU before the end of March, something that is likely to highlight the uncertain outlook for the country’s economy in the years ahead. Her finance minister Philip Hammond has said the resilience of the British economy since the vote means the country will enter the Brexit negotiations from a position of strength.

Technical analysis

The EUR/GBP broke below the rising December-January trendline and the nearest support level is 0.8450 low on January 3. We think there is a chance for a recovery move from here and today’s close will show us whether it worth to risk a long position for the coming sessions.

Trading strategy

The situation is unclear now and we are waiting for today’s close to decide whether to open a long position.

NZD/USD: Strong CPI acceleration in New Zealand

Macroeconomic overview

New Zealand inflation sped up smartly to 1.3% last quarter on an annual basis, moving back into the central bank’s target range for the first time in two years in a relief for policy makers. A reading of 1.2% had been expected.

The revival should reinforce the Reserve Bank of New Zealand’s determination to keep interest rates on hold after slashing to a record low of 1.75% last November, when inflation was hovering at just 0.4%.

High construction costs, rising petrol prices and increased spending and demand for services from the country’s record number of migrants and tourists pushed up the index.

In its last monetary policy statement, the RBNZ forecast inflation would pick up to 1.7% by the end of this year and 2.0% by the close of 2018. In our opinion these forecasts are probably too dovish. The central bank next meets on February 9 and is considered certain to stand pat with a neutral bias on policy.

Technical analysis

The trend is bullish now but some bear warning signals appear. The pair pierced the 76.4% fibo of 0.7402-0.6859 fall but could not hold above that level.

Trading strategy

We think that the NZD/USD is likely to retreat to near 0.7160 in the coming days and we will consider entering a long position at that point.

TRADING STRATEGIES SUMMARY:

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