Negative World Bank Forecast Pressures Euro and British Pound

The GBP/USD and EUR/USD fell on Thursday after the World Bank announced it had cut its global growth forecast, fueling demand for safer assets. A pair of friendly U.S. economic reports also helped support the Greenback against the British Pound and Euro.

According to the World Bank, the global economy is predicted to expand only 2.2 percent in 2013, less than a January forecast for 2.4 percent growth and slower than last year’s 2.3 percent. This put fear in investors since both the U.K. and Euro Zone economies are struggling. In the meantime, the U.S. economy continues to post slight improvements, prompting the Fed to consider winding down its aggressive bond-purchasing program.

USD 5

Early Thursday, the U.S. Commerce Dept. reported May retail sales rose at the fastest rate in three months, spiking a seasonally adjusted 0.6%. Retail sales were expected to rise 0.5% in May after a small 0.1% increase in April.

A drop in weekly jobless claims also helped underpin the dollar. Weekly claims fell by 12,000 to 334,000 for the week-ended June 8. This beat the estimate by 350,000.

The uncertainty created by the turmoil in Japan and the upcoming Fed stimulus decision created enough concern to drive August Gold higher. Today’s action has formed a new main bottom at $1364.50. If momentum continues to build, the main trend may turn to up if traders can take out the last swing top at $1423.30.

The triangle chart pattern taking place is considered a non-trending pattern. This pattern typically indicates impending volatility. The situation in Japan seems to be potentially explosive. This could trigger a sharp rise in gold if speculators decide to pile in. A sharp sell-off in the stock market may also send traders into gold.

A generally weaker dollar helped boost crude oil prices. The move, however, has not changed the longer-term outlook for lower prices. Oversupply is still an issue and the bigger picture suggests the market is likely to remain in a range until the economy heats up and demand increases.

Key resistance is at $97.35 and $97.38. On the downside, renewed selling pressure could drive the market into a retracement zone at $93.81 to $93.20. 

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James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.

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