Fundamental
Overview
The USD finished last week
at the lows despite the lack of meaningful catalysts. Overall, it just
maintained the bearish bias triggered by Powell’s dovish tilt at the Jackson
Hole Symposium. This week it’s doing the opposite with most of last week’s
losses already erased. We are just ranging ahead of the key US data.
In fact, traders will be
focused on the US labour market data this week, culminating in the NFP report
on Friday. The data will influence interest rates expectations greatly. Right
now, the market is pricing an 89% probability of a rate cut in September and a
total of 55 bps of easing by year-end.
Strong data might take the
probability for a September cut towards a 50/50 chance but will certainly see a
more hawkish repricing further down the curve and likely support the dollar.
Soft data, on the other hand, will likely see traders increasing the dovish
bets with a third cut by year-end being priced in and weighing on the
greenback.
On the GBP side, the BoE delivered
a hawkish cut at the last meeting and since then the data has been coming on
the hotter side. In fact, the latest UK CPI surprised once again to the upside
and the latest Flash PMIs, although mixed, showed strength and persistent
inflationary pressures.
Inflation should be the
central bank’s biggest concern even if it takes labour market weakness to get
back to 2%. That’s even more important now that UK long term yields continue to
surge. The bond market got tired of the lack of actions to fix the inflation
problem.
GBPUSD
Technical Analysis – Daily Timeframe
On the daily chart, we can
see that GBPUSD sold off all the way back to the key 1.3368 support
today after the UK 30yr yields jumped to a new cycle high. The price is now
bouncing as the buyers stepped in with a defined risk below the support to
position for a rally back into the 1.3590 resistance. The sellers, on the other
hand, will look for a break lower to increase the bearish bets into the 1.3140
level next.
GBPUSD Technical
Analysis – 4 hour Timeframe
On the 4 hour chart, we can
see more clearly the bounce from the support. There’s not much else we can
glean from this timeframe, so we need to zoom in to see some more details.
GBPUSD Technical
Analysis – 1 hour Timeframe
On the 1 hour chart, we can
see that the most recent swing low around the 1.3445 level could act as a minor
resistance. If the price gets there, we can expect the sellers to step in with
a defined risk above the resistance to keep pushing into new lows. The buyers,
on the other hand, will look for a break higher to increase the bullish bets into
the resistance. The red lines define the average daily range for today.
Upcoming Catalysts
Today we get the US ISM Manufacturing PMI.
Tomorrow, we have the US Job Openings data. On Thursday, we get the US ADP, the
latest US Jobless Claims figures and the US ISM Services PMI. On Friday, we
conclude the week with the US NFP report.
This article was written by Giuseppe Dellamotta at investinglive.com.