Overnight Headlines

*US stock rally ebbs as Fed’s Powell commits to hiking cycle

*Euro and sterling helped by improved market sentiment

*Gold drops after gains from a soft dollar negate higher yields

*UK CPI 9% vs 9.1% expected, prior 7%, core in line at 6.2%, prior 5.7%

USD sold off for a third straight session, down from a two-decade high last week. DXY is back in the support/resistance zone at previous highs around 103.82 and 102.99. GBP peaked near 1.25. EUR has popped up to 1.0524 this morning. EUR/GBP fell sharply to 0.8393 before retracing back near the 200-day SMA at 0.8441. USD/JPY tracked sideways with another consecutive “doji”. AUD advanced above 0.70 and is consolidating its bullish move today.

US equities rose on better sentiment and reduced volatility with the VIX dropping to 26. The Nasdaq led the gains up +2.6%, the S&P500 climbed +2% and the Dow +1.3%. The S&P500 faces resistance at the late February low at 4114. Support is trendline support around 4027. Asian stocks are failing to sustain the Wall Street momentum. Futures are lower.

Data Breakdown – UK data propels the pound

We are getting headline grabbing UK data this week. Yesterday saw unemployment fall to its lowest level in nearly half a century. The jobless rate stood at 3.7% with fewer people out of work than there were job openings. This is the first time on record this has happened. The labour market is red-hot, though the Bank of England does see the unemployment rate potentially rising above 5% in the next two years.

April inflation data has just been released this morning. The headline came in a tick lower than expected at 9%, still the highest rate in more than 40 years. The BoE has already warned of double-digit CPI into Autumn with another energy price hike. The pressure is on policymakers to stop inflationary pressures whilst growth slows.

Chart of the Day – GBP/USD hits resistance at 1.25

The pound has come back from the dead. Yesterday saw it enjoy its biggest one-day since October 2020. Governor Bailey started the buying on Monday when he was more combative about fighting inflation than suggested by the May BoE policy meeting. The MPC had seemed more concerned around the grim growth outlook at that time. The strong labour market data further propelled more positive sentiment, though today’s CPI data is seeing a small sell-off. It is quite something when an inflation miss of 9% disappoints.

Last week’s low in cable at 1.2155 is an obvious line of support. That was seen on Friday. But the strong close saw a bullish engulfing candle. Trendline resistance was broken on Monday and prices are now back to early May consolidation. The high during that time near 1.2604 is resistance. Initial support is 1.2405.