Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

GBP/USD Cleared A Critical Resistance At 1.3045

Published 07/18/2017, 03:48 AM
Updated 04/25/2018, 04:10 AM

FTSE -16 points at 7388

DAX -49 points at 12538

CAC -10 points at 5220

Euro Stoxx -11 points at 3505

Today could be a make-or-break day for cable. On Friday, the GBP/USD cleared a critical resistance at 1.3045, which stood for the major 38.2% retracement on the post-Brexit sell-off. The positive breakout has been caused by the heavy sell-off in the US dollar. As a result, the pair is considered in a mid-term bullish consolidation zone prior to the critical inflation data.

The UK will release the June inflation data today. According to analysts, the headline inflation may have steadied at 2.9% last month, just shy of the critical 3% level, above which the Bank of Governor (BoE) Mark Carney will be asked to write an open letter to the Chancellor to explain the reasons behind the significant deviation from his 2% mandate target.

Therefore, an inflation read exceeding the 3% level in June will likely resuscitate the BoE-hawks and could trigger a decent rally in the pound markets. The UK gilt curve steepened significantly over the past month due to escalating worries regarding the rising inflation. The 10-Year gilt yield surged more than 25 basis points and the probability of a December rate hike increased to 50%.

In opposition, a softer-than-expected inflation would give reason to the BoE Governor Mark Carney, who has been predicting a slowdown in inflationary pressures due to the decline in real wages. If this is the case, the BoE-doves shall return in force and pull the pound below the $1.30 level against the greenback.

In the US, the probability of a December rate hike fell to 42.3% in the aftermath of a series of soft macroeconomic data. As the reflation trend triggered by President Trump’s fiscal promises are waning, the Fed hawks are losing field. The slowdown in the US inflation, which was first thought to be temporary by the Fed, appears to be turning into a medium term trend. In her semiannual testimony last week, the Federal Reserve (Fed) Chair Janet Yellen also voiced her doubts about the Trump’s administration capacity of bringing the fiscal reforms to life and reaching the 3% growth target.

The sell-off in the US dollar continued on Monday, as the empire manufacturing data has been a decent miss in July. News that two more senators announced their opposition to the Republican healthcare bill further dented the investor appetite across the US markets.

The Dow Jones (-0.04%) and the S&P 500 (-0.01%) saw no enthusiasm. The US 10-year yields slipped below the 2.30% level.

Gold is preparing to test the $1,240 (major 38.2% retrace on June-July fell) on the back of lower US yields. Surpassing this level should suggest a short-term bullish reversal and encourage a further rise toward $1,247 (50, 100-day moving average) and $1,250 (50% retrace).

The EUR/USD rallied on stops after breaking the 1.15 level on the back of a broad-based USD unwind. Trend and momentum indicators are comfortably positive for a further development of the bullish trend, yet the uncertainties prior to the European Central Bank meeting will certainly keep the upside potential limited. The next important resistance is eyed at 1.1616, the 2016 peak. Support to the current trend stands at 1.1446 (minor 23.6% retracement on June-July rise) and 1.1394 (major 38.2% retrace). Decent call option is eyed at 1.1535 at today’s expiry.

Nikkei (-0.68%) and Topix (-0.40%) were offered on stronger yen, as Japanese traders returned from the Marine Day break. The USD/JPY broke the major 38.2% retracement support (112.32) on June – July rise and extended gains to 111.99. The USD weakness is the main cause of the current drawback. Nonetheless, the divergence between the Fed and the Bank of Japan (BoJ) policy outlooks is still supportive of a stronger USD/JPY. Traders should be seeking dip buying opportunities as soon as the USD sell-off loses momentum.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.