UK consumer confidence rising again, but for how long?

It is, however, still negative, rising to -25, five points better than the previous month. Economists anticipated a gain of only one point to -29.

British consumers' moods perked up as lower inflation made people more upbeat. With the consumer price index now at 6.8%, wage growth is now close to matching inflation for the first time in nearly two years. However, that rise in wages, climbing at its fastest on record in the most recent data, has implications of its own.

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GfK consumer confidence

I want to talk a little bit about what's happening here in the UK because we've seen some good GfK consumer confidence out overnight, rising more than expected in the month of August, the index recording its biggest gain since April. Evidence suggests that the cost of living is finally beginning to ease with some caveat.

Let's take a look at what we've got from GfK this morning. It's still negative though, and the easing of the situation is all relative, rising to a negative 25, five points better than the previous month. The economy is anticipating a gain of only one point, to a negative 29. British consumers' mood perking up as low inflation made individuals less downbeat, with the consumer price index now at 6.8%. Wage growth is now close to matching inflation for the first time in nearly two years.

The Bank of England

But that itself has all sorts of problems for the Bank of England with wage growth soaring as indeed it is. It means that the Bank of England is now potentially poised at least to keep where we are, or possibly maybe to raise rates further. But look at this, what's happening here is that we've got weakness for sterling coming out of this number out overnight. I think possibly the interpretation for that was twofold. First of all is we've got a stronger dollar, which is why we've got sterling down as we have.

GBP/EUR

But the GBP/EUR is weaker, and I think part of this is possibly that if the Bank of England does keep on raising interest rates, the UK will go into a recession. I think that's an inevitability with the direction of travel. I want to show you this as well. This is a head and shoulders pattern here, and I've already drawn the head away from the neckline. Neckline is because of these two low points we had here. I've drawn that red dotted line measuring the distance and projected that down here.

GBP/USD

This would give a projection of the lows that we had back on the 15th of March at the 1.2050 level, which would be the price target if you're short on this. If you are short, stock goes above the top of yesterday's candle, round about the 1.207 level. That's not a long way away. That's two cents away from where we are. But that shows you the distance and the speed of the move that we saw yesterday with that big drop of GBP/USD.

Jerome Powell Speech

But the fact we're now trading below the neckline, we had a candle placed below the neckline yesterday, and we're picking up on the downside as well today, there is some sort of confidence that the short trade will continue in this sort of direction. Again, subject to what Jerome Powell has to say this afternoon. Now, if you do take a position where we are at the moment with the stock loss around about the 1.207 level, and what you would want to do is if you saw a pickup on the downside for this, you then want to bring a stop loss in to lock in some of the profits as we go on further on down. And I'll be covering this in the days, weeks ahead on the early morning call just to check in to see how that trade is going.

The moving average

Below where we are is the 200 day moving average, which is at 1.24 at the moment. And that could be an area where we might well see some sort of support for sterling. Sterling against the euro, slightly different sort of trade, but we have seen two days, three days now, declines for sterling against the euro, slightly stronger than expected number coming through this morning for the figures around what's happening in consumer confidence.