UK wages continue to rise and inflation of Canada
#Markets #Economy #Inflation #USD/CAD #GBP/USD
- The UK unemployment rate rose from 3.7% to 3.8%, while the number of people in work is rising.
- Wages and salaries in England are also showing an increase of 5.9%.
- UK inflation data for March is expected tomorrow.
- Technical forecast GBP/USD
- Inflation in Canadа
- Technical forecast USD/CAD
UK labor market data was released today. On the positive side, unemployment rose from 3.7% to 3.8% and the change in jobless claims in March was at pre-pandemic levels.
But at the same time the average number of people employed over the last three months has risen. Most importantly, average payrolls continue to rise at a higher-than-expected rate. In February, adjusted for bonuses, the average UK wage rose 5.9%. Before the pandemic wage growth averaged 3% per month, i.e. now we see wage growth rates that are 2 times higher than before the pandemic, which contributes to a further acceleration of inflation.
Earlier, there were already protests by trade unions in Great Britain on the subject of wage increases. Apparently, the UK government has made concessions. If this is indeed the case, that it will be very difficult to beat CPI.
However, the data on inflation in Great Britain for March will be published tomorrow. Analysts expect CPI growth to slow to +0.5% for the broad index and to 0.2% for the core index and for CPI to fall to 9.8% from 10.4% on an annual basis. Last month, analysts were expecting about the same data, but CPI rose 1.1% for the month then. We will see what the data will be tomorrow, but in any case, the U.K. inflation is still too high for the central bank to take a pause in tightening monetary policy, which will support the GBP.
The ratio of buyers to sellers in GBPUSD is outweighed by the latter with 38.2% of buyers against 61.8% of sellers, which indicates that the upside movement is likely to continue.
Technically GBP/USD has corrected to the support level in the range 1.2380 – 1.2450 and the middle of the descending (blue) channel. After the correction, which worked out the earlier divergence on the RSI indicator and rebounded from the support level. If the price can close above 1.2410 at the end of the day, a “takeover” pattern will be formed.
Today there is a USD correction in the whole market. Of course, further GBPUSD movement will be influenced by tomorrow’s CPI data. If the price manages to cover the yesterday’s candlestick completely at the end of today’s trading, further GBPUSD growth can be expected. The first target I see is the return to the previous high near 1.2545.
Inflation in Canada
The CPI report for Canada was recently released. For March, prices rose 0.5%, in line with expectations, for the broad index and 0.6% for the core CPI, which was above expectations of 0.4%. On an annualized basis, the CPI for the broad index declined to 4.3% from 5.2% and the core CPI declined to 4.3% from 4.7%.
On an annualized basis, March 2022, where CPI growth was 1.4%, dropped out of the statistics. For Q1 2023, average monthly price growth is 0.466%, indicating an annual rate of 5.6% – still above the Bank of Canada’s targets. That said, maintaining the 0.466% growth rate over the next 2 months will allow a return to an annual CPI of 3.1% to 3.2% by June of this year, as April 2022 (+0.6%) and May 2022 (+1.4%) will fall out of the statistics.
A figure of 3.2% could be considered almost a victory, but we would still have to push for a lower monthly rate of increase to hold that value.
If we look at inflation in Canada in a cross-section, we can see that there was no decrease in prices in any of the categories at the end of the month. On a year-over-year basis, prices declined in the gasoline and energy sections, which was due to lower oil and gas prices.
Recall that the Bank of Canada has already left the rate unchanged twice, but continues to conduct a program of quantitative tightening. The growth in the core index month after month (+0.3% in January 23, +0.5% in February 23, +0.6% in March 23) may force the regulator to go back to a rate hike to change this dynamic and achieve plans to return to a 2% CPI in 2024.
Also, a rise in oil prices at the end of March and a stabilization of prices near the $85 mark could lead to a reversal of the trend in gasoline prices. And if the U.S. also starts replenishing its strategic reserve, prices could rise even higher, which would make the situation worse. In Canada, gasoline prices were already up 1.2% in March, so the Bank of Canada’s plan is really in jeopardy now.
The CAD reacted to the release of this data by declining.
The correlation of buyers and sellers in USD/CAD has outnumbered the former: 69.3% of buyers against 30.7% of sellers, which indicates that the downside movement is likely to continue.
Technically, the USD/CAD broke the support at 1.3325-1.3350, but the reversal was stopped by the 200 SMA. At the same time, the price reached the oversold level to 30 on the RSI indicator, which last happened in October 2021 and led to a global trend reversal in the USDCAD pair.
In general, the strengthening of the CAD against the USD against the background of the Bank of Canada pause and before that looked the most logical. Maybe it has to do with rising oil prices, since Canada is an oil producer’s j and rising oil prices supports the CAD one way or another. Right now we can look for the 200 SMA and its break-up will take us to the next resistance between 1.3500 and 1.3520.
That said, I do not exclude another pullback to the local lows of November 2022 and February 2023 because the buyers-sellers ratio still leaves the buyers out number the sellers and a capitulation might occur after another false break-down of the support at 1.3500-1.3520.
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