Pound Rallies after CPI Shock

Morning Report: 07.30 London

• This morning, the dollar index is once again on the retreat after a brief rally yesterday on the back of disappointing German ZEW economic sentiment data. This comes despite Chinese inflation coming in below expectations this morning.
                

• The euro is rallying this morning after those disappointing German figures, maintaining its gains against the pound from yesterday.

• The pound suffered a shock yesterday after CPI data came in negative (just), sending the GBP/USD and other pairs shooting lower. Sterling is staging a recovery this morning, but the GBP/JPY is lagging.
              

• Commodity currencies are also recovering from yesterday’s Chinese miss, with gold continuing to zip towards the highs.

Coming up today:

• Coming up today we have UK average earnings at 09.30, released alongside claimant count change data and the unemployment rate.

• From 13.30, we switch to the US for PPI and retail sales data.

Trade Idea:

• Markets took a big swipe at the AUD/USD yesterday, but the momentum story is still there. China’s wobble looks controllable so far, especially with the fed backing off.

There could be more upside from here and a good way to play this is a HIGHER trade predicting that the AUD/USD will close above 0.7300 in 14 days time for a potential return of 137%.

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