British consumer prices held steady last month, ignoring an increase in the prices of imported raw materials driven by the country's decision to leave the European Union. According to the UK Office for National Statistics (ONS), the Consumer Price Index (CPI) came in at 0.6% in August, in line with last year's reading, whereas market analysts penciled in a slight increase to 0.7% in the reported month. On a monthly basis, the CPI grew 0.3% in August, up from the preceding month's fall of 0.1%, while economic desks expected the indicator to come in at 04%. Meanwhile, the so-called core CPI, which excludes food and energy prices, increased 1.3% on an annual basis in the eight month of the year, unchanged from July's reading, whereas analysts anticipated a slight rise to 1.4% in August. The British Pound dropped 0.6% against the US Dollar after the data release, trading at $1.3250 on the London Stock Exchange.
ONS data also showed that the Producer Price Index Input (PPI Input) rose 0.2% month-over-month in August, compared to July's downwardly revised gain of 3.1%. Markets expected the Index to come in at 0.6% last month. Furthermore, the Retail Price Index (RPI) climbed 1.8% in the same month, down from July's reading of 1.9% but in line with analysts' expectations.
UK data to deteriorate
GBP/USD dives under 1.3250; pair looks south
The support trendline (lower bound of the five-week channel) we expected to hold the pair failed before the Cable gained a solid foothold above 1.34 dollars, giving way for a sell-off. The immediate supports are represented by the 55-day SMA and monthly PP, but the current decline is likely to rush past the end-of-August lows of 1.3050 towards 1.2850, which proved to be significant both in July and August. In order for the pair to restore the bullish outlook, the price needs to close above 1.34 and confirm this level as the new support.
Daily chart
Hourly chart
Less SWFX traders are short the Sterling
The number of bears decreased with depreciation of the Sterling—their share went from 57 to 52%. Nevertheless, there was no change whatsoever in the distribution between the buy (44%) and sell (56%) orders.
There is a different attitude towards the Pound among the clients of OANDA and Saxo Bank. In both cases the bulls are in a majority with 56% of the market. And although this is almost no change for OANDA, the share of longs at Saxo Bank was at 44% just yesterday.
Spreads (avg, pip) / Trading volume / Volatility
Traders' forecasts remain stable
Traders have not materially changed their view on GBP/USD since the beginning of July, with the average forecast fluctuating slightly in the range between 1.32 and 1.30 dollars. However, the actual percentage of people who voted for this interval is only 5%, and merely 11% of traders voted for the 1.30-1.34 interval, where the currency pair has been trading since the beginning of July. The most popular answer choice was the 1.36-1.38 interval, which was chosen in 15% of cases. At the same time, 43% of traders expect the Cable to be above 1.34 and 47% of traders expect the rate to be below 1.30 in three months.