BoE Governor Carney Crumbles The Cable

The overall majority of the financial markets attention yesterday was focused around how the latest UK Jobless Claims, in addition with the Bank of England (BoE) Inflation Report would fluctuate the GBPUSD and wow, it refused to disappoint.

Starting with UK Jobless Claims, another 33,600 decline was recorded, while the overall unemployment rate fell to 6.4%. This was considered positive and the GBPUSD reached as high as 1.6836 as this news came through. However, it was announced moments later that for the first time since 2009, wages fell by 0.2%. The Cable quickly lost all gains and traded at around 1.6793.

From here, all eyes were on the BoE Inflation Report and more specifically, Governor Carney. A dovish Carney turned up at the races and sent the Cable on a downward spiral. Carney indicated that the level of spare capacity within the UK economy has narrowed to around 1% of GDP, but “even if spare capacity was eliminated, the level of bank rate would not rise materially because of global economic headwinds”. Furthermore, the BoE halved its forecast for average wage growth and strongly indicated that average wage growth would begin to play a pivotal role towards a possible BoE rates hikes. All in all, the GBPUSD declined by over 130 pips from Wednesday’s high and concluded trading at its lowest level since the 15^th April, 1.6687.

In regards to what’s next to come from the United Kingdom economy, GDP and CPI (inflation) are released on Friday and Monday respectively. Although the UK fundamentals continue to look strong, an interest rate in 2014 and perhaps even the first quarter of 2015 appear a distant hope at present. Therefore, investors are going to become more reluctant to purchase the GBPUSD and a return to the area between 1.67/1.68 seems unlikely anytime soon, let alone the 1.70 highs. Carney’s dovish tone will likely continue to encourage bearish movement in the GBPUSD for the time being, before the pair enters a consolidation stage. Possible support levels can be located at 1.6676 and 1.6642.

The EURUSD also encountered volatility on Wednesday, receiving an unexpected boost following US Advance Retail Sales falling flat last month. The EURUSD increased as high as 1.3414 as some risk appetite emerged. However, the EU economic sentiment remains bleak and the pair refused to maintain gains for a meaningful amount of time. The EURUSD concluded trading at 1.3363.

Despite the announcement that US Advance Retail Sales fell flat last month resulting in a minor pause in the recent USD rally, the news that the Japanese economy suffered its worst economic contraction since 2011 the evening before, prevented the JPY from being sought as a safe-haven. In fact, this pair appreciated on Wednesday and concluded trading at 102.406.

Economic news from Japan is quiet now and I would expect the economic contraction confirmation to prevent any substantial demand in the JPY for some time. Therefore, how this pair fluctuates will be dependent on US economic data and this afternoon, the latest United States Initial Jobless Claims are released. Possible upcoming resistance for this pair can be found at 102.540, 102.715 and 102.798. In the event this pair appreciates even higher, it must be remembered that 103 remains a psychological resistance level for the pair and until we witness at least one clean closing break above this area, the pair will just likely pull back.

The previous evening’s impressive Westpac Consumer Confidence release has continue to provide the AUDUSD with a boost. The AUDUSD concluded trading at 0.9303

Even though a previous Reserve Bank of Australia (RBA) monetary statement mentioned domestic confidence declining and the Consumer Confidence release should have dispelled those fears, it is worth noting that 0.9303 was previously viewed as a very dynamic support level in the AUDUSD. Furthermore, the RBA has made no hidden secret regarding its belief that the AUDUSD remains “historically high” and would prefer a lower valued Australian Dollar.

There is nothing to prevent a dovish RBA statement emerging to prevent an AUD rally and this pair might even pullback at some stage. If this occurs, AUDUSD support can be found at 0.9294, 0.9279 and 0.9258.