Inflation in focus as geopolitical tensions ease

European bourses are looking at a positive start to trading, taking the lead from a strong finish in the US, which transferred across to a strong session in Asia overnight. Sentiment is on the up after several long weeks of raised geopolitical tensions stemming from US-Chinese trade war fears and souring US-Russian relations.

European bourses are looking at a positive start to trading, taking the lead from a strong finish in the US, which transferred across to a strong session in Asia overnight. 

Sentiment is on the up after several long weeks of raised geopolitical tensions stemming from US-Chinese trade war fears and souring US-Russian relations.

Whilst the US and China were flirting with an all out trade war, both sides have since stepped back from the brink. 

Meanwhile President Trump has also contradicted US ambassador to the UN Haley Nikki by suggesting that the US will not be going ahead with further sanctions against Russia as had been previously suggested, marking a significant de-escalation of the crisis stemming from the Syrian bombings and a slight thawing of relations between US and Russia.

With sentiment increasing on reduced geopolitical tensions, traders on Wall Street have been able to focus their attention on US earning season which has had an impressive start. 

Despite high expectations US firms are managing to not only beat expectations but also give encouraging forward guidance, giving investors reason to believe that this current rally has further to run.

Will U.K. inflation continue to fall?

High impacting UK economic data today comes in the form of U.K. inflation numbers due at 09:30 this morning. 

Yesterday’s U.K. jobs data knocked sterling from its post Brexit high versus the dollar. Traders were disappointed by the 2.8% average earnings growth in the three months to February, lower than the 3% forecast. 

Traders will now be looking at inflation figures for March, in the hope that falling inflation rather than increasing wage growth will reduce the squeeze on the consumer.

CPI for March is expected to print at 2.7%, unchanged from February. Usually we would be looking for a higher inflation print to boost the pound. 

However, today a lower print could be expected to boost the pound, given that this would encourage a more hawkish BoE on the back of the stronger position of the consumer. 

Should the pound look to target its post Brexit highs of $1.4377, the FTSE could find its early gains limited and potentially be drawn back towards 7200.

EUR/USD over $1.2450 on EZ CPI data?

CPI data for the eurozone will also be under the spotlight this morning. 

On a yearly basis inflation for the bloc is expected to to be 1.4%, meanwhile on a monthly basis an increase is forecast to 1% from 0.2%. 

This would be an encouraging sign that inflation could be slowly moving towards the ECB 2% target after a year of sluggish movement. EUR/USD is trading flat at $1.2370 ahead of the release. 

A surprise to the upside could see EUR/USD target near term resistance at $1.2414 before advancing to $1.2478. On the downside a softer print could pull the pair back towards $1.23 prior to support in the region of $1.2214.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.