Trade Of The Week: Can ECB Hawks Rescue Euro Bulls?

Our focus falls on the European Central Bank (ECB) which is expected to unleash a monetary bazooka in the form of a 75-basis point rate increase! Such a move will place the ECB among the ranks of 40+ central banks that have increased rates by 75bp or more in one go this year in the face of soaring inflation.

Before we take a deep dive into what to expect from the ECB meeting on Thursday, it is worth keeping in mind that the Eurozone economy remains vulnerable and faces the growing risk of recession. The unsavoury combination of ongoing geopolitical tensions, untamed inflation, and energy crisis continues to darken the outlook for Europe with the latest development revolving around Russia’s Gazprom dumping salt into the wound.

Interestingly the euro was able to hold its ground versus most G10 currencies in August excluding the dollar. However, things are not looking too pretty quarter-to-date with the euro down roughly 5.7% against the king of the currency space.

Since the EURUSD secured a solid daily close below parity back in late August, prices have struggled to push higher thanks to technical and fundamental factors.

The outlook for the EURUSD remains bearish on the daily, weekly, and monthly timeframe with prices wobbling above 0.9900 as of writing. Given how the ECB is expected to join the jumbo hike club, could this be enough to cushion the downside and rescue euro bulls?

The Low Down…

Eurozone inflation hit a new record high in August at 9.1%.

This was higher than the 8.9% witnessed in July and above the 9% market forecast. With inflation hitting such lofty and uncomfortable levels, market expectations intensified over the ECB adopting an aggressive approach toward rates in an effort to cap inflation. According to Bloomberg, traders and predicting a 66% probability of a 75 bp rate hike in September. It does not end here.

Last Friday, Gazprom made a last-minute decision to suspend natural gas flows through the Nord Stream 1 pipeline – ultimately worsening the squeeze on Europe’s energy supplies. This move is likely to expose the economy to downside shocks and create more uncertainty and fuel inflationary pressures as gas prices soar.

What to Expect From ECB?

Before thinking about what to expect from the ECB on Thursday, there are a couple of things to keep in mind before the big day. ECB hawks are certainly in the building but the question is how much resolve they have to tame inflation. It’s worth keeping in mind that the latest ECB economic forecasts could offer fresh insight into inflation expectations. It will be interesting to see what the central bank has to say about the energy crises and whether this will push the Eurozone into recession. Let’s not forget about the depreciating euro and how it could impact the central bank’s policy outlook.

Possible Outcomes on Thursday

  • ECB hikes rates by 75 basis points and strikes hawkish tone opening doors to further jumbo hikes. This move may inject euro bulls with fresh inspiration, pushing the EURUSD back above parity towards 1.0100. However, upside gains may be capped by the gloomy outlook for the Eurozone.
  • ECB hikes rates by 75 bp but expresses concern over the economic outlook, reducing bets of more aggressive hikes down the road. Euro pops higher but bears seize control – limiting gains below parity
  • ECB surprises markets with a 50 bp hike and strikes dovish tone, this could excite euro bears – triggering a selloff that breaches the 0.9900 floor.

EUR/USD: The Path of Least Resistance South…

As the subtitle says, the path of least resistance for the EURUSD points south.

Earlier we identified how the currency pair was bearish on the daily, weekly and monthly timeframe. Looking at the weekly timeframe, prices are respecting a bearish channel and trading well below the 50-, 100- and 200-week Simple Moving Average. Sustained weakness below parity could trigger a selloff towards 0.9700 and 0.9600, respectively. A strong weekly move back above 1.1000 may suggest an incline towards 1.0200.

Zooming in on the daily, prices remain bearish but there could be a period of consolidation if 0.9900 proves to be reliable support. A solid daily close below this level could trigger a selloff towards 0.9700. Should 0.9900 prove to be reliable support, a rebound towards parity and potentially higher could be on the cards before bears re-enter the scene.

For more information visit FXTM.

Sterling slightly up versus dollar after PMI data

By Stefano Rebaudo

(Reuters) – Sterling was slightly higher against the dollar on Tuesday after Purchasing Managers’ index (PMI) data from Britain showed that business activity slowed roughly in line with expectations.

The PMI composite flash estimate dropped to 50.9 in August from 52.1 in July. Economists polled by Reuters had forecast the index would fall to 51.1.

The pound hit a fresh 2-1/2-year low versus the greenback earlier in the session on concerns that Britain’s PMI data would have kept the pound without any solid floor against the dollar.

It erased its early losses after data from the euro zone’s lead economies showed business activity slowed less than expected in August.

By 0901 GMT, sterling rose 0.05% versus the dollar to $1.1771 after hitting its lowest since end-March 2020 at $1.1718.

The U.S. dollar index was marginally lower while the euro dropped to a fresh two-decade low by renewed concern that an energy shock will keep inflation elevated and makes a recession in Europe all but certain.

“The pound remains weak and might fall further – probably even down to 1.15 against the greenback – due to recession fears in the UK and despite PMI data roughly in line with expectations,” said Roberto Mialich, strategist at Unicredit.

Analysts said sterling was no longer positively correlated with interest rates as recession fears were prevailing over any further potential monetary tightening after the Bank of England (BoE) lifted the policy rate to 1.75% early this month.

The pound rose 0.1% versus the euro to 84.41 pence against the euro.

“EUR/GBP should keep trading in tighter ranges, as markets see the eurozone’s and the UK’s economic outlook following similar rocky paths. Oscillations within the 0.8400-0.8500 range may continue to rule in the near term,” ING analysts said.

Speculators’ net long positioning on the U.S. dollar rose in the latest week, while net shorts on the euro increased, according to data released last week.

“CFTC data suggest that August saw euro (net) short positions grow, but sterling ones shrink back. The market is still short sterling, but not short enough to offset the threat from a weakening economy and a political vacuum,” said Kit Juckes, macro strategist at SocGen.

(Reporting by Stefano Rebaudo, Editing by Gareth Jones)

Mid-Week Technical Outlook: Pound Crosses In Focus

Consumer prices rose 10.1% in July from a year ago after a 9.4% gain in June. This was the highest reading since February 1982 as prices rose for food, housing & utilities and alcoholic beverages among other products/services. Although this red-hot CPI report will reinforce expectations over the BoE aggressively raising interest rates, it will also create more uncertainty over the UK’s economic outlook.

We saw the Pound appreciate against most G10 currencies following the report as BoE rate hike bets jumped.

GBP/USD remains in wide range

The GBPUSD remains in a wide range despite the red-hot inflation figures. Support can be found at 1.2000 and resistance around 1.2155. A solid break under 1.2000 may open the doors towards 1.1900 and lower. Alternatively, a strong breakout above 1.2155 could spark a move towards 1.2250 and 1.2350.

GBP/JPY Set to Push Higher?

It has been a roller coaster ride on the GBPJPY. Prices have been volatile, choppy and all over the place. Prices are back above the 100-day Simple Moving Average and slowing approaching 164.00. A strong move above 164.00 signal an incline towards 166.00. If bears are able to pull the GBPJPY back below 162.00, the next level of interest cant be found at 160.00.

EUR/GBP in Downtrend

The EURGBP remains in a bearish trend as there have been consistently lower lows and lower highs. Prices are trading below the 50,100 and 200-day Simple Moving Average while the MACD trades below zero. Sustained weakness below 0.8440 could encourage a selloff towards 0.8340. A breakout above 0.8440 is likely to encourage bulls to target 0.8500.

GBP/AUD Heading Into Resistance?

Pound bulls seem to be gaining momentum on the GBPAUD with prices pushing towards the 50-day Simple Moving Average. There could be some resistance here as the 100-day SMA resides just above. If these two obstacles can be cleared, prices may test the 1.7650 level and 1.7800, respectively. Should bulls tire and prices sink back below 1.7300, the next key point can be found at 1.7000.

For more information visit FXTM.

Pound tumbles after data shows British economy contracted in June

By Alun John

(Reuters) – Sterling slid against a firming dollar on Friday and also lost ground on the euro as data showed Britain’s economy contracted in June, even if not by as much as had been feared.

The Office for National Statistics said gross domestic product fell by 0.6% in June, the biggest contraction since January 2021 but less severe than the 1.3% drop predicted by a Reuters poll of economists.

The pound tumbled 0.58% against the dollar to $1.2143, in morning trade, falling more sharply than peers against the rallying greenback.

The euro and Japanese yen also lost ground, however, as markets digested a new round of hawkish remarks from policy makers at the U.S. Federal Reserve, helping the dollar regain some of its losses from earlier in the week. [FRX/]

June’s GDP decline was partly a result of two bank holidays in the month to celebrate Queen Elizabeth’s Platinum Jubilee.

The data also suggested growing weakness among consumer-facing sectors of the economy as Britons deal with inflation reaching a 40-year high in the wake of the war in Ukraine.

The euro climbed 0.3% on the pound to 84.82 pence its highest in two-and-a-half weeks.

It is up nearly 0.5% on the week, which would be its biggest weekly gain since mid June, though may struggle to climb much further.

“EUR/GBP is slightly stronger than we thought and could edge up to the 0.8485 area. But given the challenges faced on the continent, we would not chase EUR/GBP higher,” analysts at ING said in a note.

Both Britain and mainland Europe are grappling with a string of problems from weak economies, surging inflation, and latterly growing fears of drought.

The Bank of England last week predicted Britain would enter a recession at the end of 2022 and not emerge until early 2024 as it raised interest rates to battle inflation, which it said was likely to exceed 13% in October.

News British households faced new water usage restrictions on Friday, with parts of England likely to formally declare a drought, also weighed on the pound, which has been reacting to such headlines this week.

(Reporting by Alun John; Editing by Mark Potter)

Week Ahead: GBP/USD Upside Likely Capped Around 1.24

Economic calendar for next week

That theme will continue to be the focus in the coming week:

Monday, August 15

  • JPY: Japan 2Q GDP, June industrial production (final)
  • CNH: China July industrial production, retail sales, jobless rate

Tuesday, August 16

  • GBP: UK June unemployment rate, July jobless claims
  • EUR: Eurozone August ZEW survey expectations
  • USD: US July industrial production
  • Walmart Q2 earnings

Wednesday, August 17

  • NZD: RBNZ rate decision
  • GBP: UK July CPI
  • EUR: Eurozone 2Q GDP, unemployment
  • USD: FOMC minutes, US July retail sales
  • US crude: EIA weekly oil inventory report
  • Tencent 2Q earnings

Thursday, August 18

  • AUD: Australia July unemployment
  • EUR: Eurozone July CPI (final print)
  • USD: US weekly jobless claims; speeches by Kansas City Fed President Esther George and Minneapolis Fed President Neel Kashkari

Friday, August 19

  • NZD: New Zealand July external trade
  • JPY: Japan July National CPI
  • GBP: UK July retail sales, August consumer confidence
  • CAD: Canada June retail sales

UK Inflation and rate hike odds

For the UK’s July consumer price index (CPI), markets are forecasting a year-on-year print of 9.9%.

If so, that would mark the fastest advance in UK inflation since the 10.2% print back in February 1982.

Though keep in mind that the Bank of England (BOE) had already forecasted double-digit inflation to arrive by October, hence it’ll be no surprise if the CPI print continues moving higher.

A higher-than-expected headline inflation print next week may not be enough to even prompt markets to significantly raise their bets that the Bank of England can proceed even with a 50-basis point hike at its September meeting.

  • A week ago, the odds of a 50bps hike in September was placed at 95.3%.
  • At the time of writing, markets are forecasting a 77% chance that the BOE can even follow through with such a “2-in-1” hike (rate adjustments by major central bankers are traditionally carried out at 25bps per policy meeting).

Markets have walked back bets of the BOE being overly aggressive with its rate hikes, given the cracks that are already showing in the UK economy:

  • Q2 GDP shrank 0.1% compared to Q1 (though slightly better than the -0.2% median estimate)
  • Industrial production fell 0.9% in June (second month-on-month contraction from the past 3)
  • Q2 private consumption contracted by 0.2% compared to Q1
  • Q2 imports fell by 1.5% quarter-on-quarter

GBP/USD Price forecast

Overall, it’s difficult to retain any optimism about the UK economic outlook, considering the ongoing cost of living crisis.

And the widely-held consensus is that the worst is yet to come, with a recession looming.

Such a woeful outlook, with the BOE already expecting a recession by the end of this year, is set to cap significant upside for the Pound.

Sterling has weakened against all of its G10 peers this week, except versus the US dollar.

While GBPUSD has found support at its 21-day simple moving average in recent sessions, upside appears capped around the 1.24 mark.

Should we see a resurgence in the US dollar in the coming week, perhaps fuelled by fresh hawkish clues out of the FOMC minutes or the scheduled speeches by Fed officials, that might see GBPUSD falling below its 21-day SMA and retesting the psychologically-important 1.20 level.

Weaker-than-expected UK jobs data, consumer confidence, and retail sales in the coming week could also prompt GBPUSD to revisit recent lows.

For more information visit FXTM.

Sterling wraps up small monthly loss against the dollar

(Reuters) – The British pound ended July with another weak showing on Friday after U.S. inflation data boosted the dollar again.

The pound fell almost 1% during afternoon trading as it moved mainly on a rallying dollar after key U.S. inflation data, but pared losses in the late afternoon to end the month about 0.1% down.

“The dollar is generally firmer, which seems to be a bit of an overreaction to marginally stronger core PCE data earlier today,” said Adam Cole, Chief Currency Strategist at RBC Capital Markets.

The pound was down virtually flat against the dollar by 1509 GMT at $1.2163 pence, having earlier fallen 0.9%.

The dollar rallied on Friday afternoon after news U.S. consumer spending increased more than expected in June.

During 2022, sterling has recorded just one month of gains versus the dollar – rising marginally in May – but has racked up a 10.1% loss since January against a backdrop of economic slowdown, rising interest rates and domestic political turmoil.

“It’s generally been underperforming most of the year and it’s a trend that we expect to continue,” Cole said

Data from the Bank of England on Friday showed British consumer lending rose last month at its fastest since May 2019 while the number of mortgage approvals fell to the lowest since June 2020.

It is the latest sign British consumers are facing an increasing cost-of-living crisis and comes ahead of the central bank’s key meeting next week, with policy makers mulling whether to increase interest rates by a larger hike of 50 bps.

Sterling stabilised versus the euro on Friday after hitting a three-month high versus the single currency on Thursday. The pound was down 0.4% versus the euro at 84.055 pence.

“The drop in EUR/GBP has been almost entirely driven by the EUR leg and global risk sentiment (to which the pound is more sensitive than the euro), and given the lack of any major domestic drivers in the UK before the 4 August BoE meeting, this should continue to be the case,” ING analysts said in a note.

(Reporting by Lucy Raitano; Editing by Frances Kerry)

Sterling hits three-month high vs euro, falls against dollar

LONDON (Reuters) -Sterling rallied to a new three-month high versus the euro as traders dumped the single currency on concerns about an escalating energy crisis in the euro area.

With the conclusion of the Conservative Party leadership contest that will decide the next British prime minister not due until September and investors waiting for the Bank of England monetary policy meeting next Thursday, analysts say there have been few domestic drivers for sterling in recent weeks.

Instead, the British currency has benefited from a pullback in the dollar and a euro still struggling under the weight of worries about shortages of natural gas from Russia and a weakening economy.

The pound gained as much as 0.5% to 83.43 pence, its strongest since April 22, before retreating in late European trading.

Versus the dollar the British currency initially flirted with a one-month high but by 1440 GMT fell 0.3% to $1.2118 after data showed the U.S. economy unexpectedly contracted in the second quarter, boosting demand for the dollar as investors sought safety.

“With the exception of some headlines about campaign pledges by (Conservative Party leadership contenders) Liz Truss and Rishi Sunak, there simply isn’t much that markets are looking at in terms of domestic drivers for GBP,” ING analysts said.

“Expect cable to keep being driven by the dollar and EUR/GBP to be driven by the euro. We think GBP/USD is still at risk of a return to or below $1.2000 in the coming weeks, while EUR/GBP may stay around 84 pence but is facing downside risks due to uncertainty over Russian gas supply.”

(Reporting by Tommy Reggiori Wilkes; Editing by Alison Williams)

Pound tumbles to lowest since March 2020 as dollar rally accelerates

LONDON (Reuters) -Sterling fell on Thursday and briefly hit its weakest since March 2020 below $1.18 as another bout of risk aversion sent investors buying dollars and dumping currencies deemed riskier when the outlook is so uncertain.

Sterling has fallen sharply in 2022 despite the Bank of England raising interest rates repeatedly. That’s because the jump in rates across the developed world has unnerved investors and sent them seeking safety in the U.S. currency, which tends to be the safe-haven of choice given its role in the global economy and how liquid it is.

A higher-than-expected reading of U.S. inflation on Wednesday fired up bets on a possible 100 basis points rate rise by the Federal Reserve this month, further rattling markets and supporting the dollar.

“The prospect of even more front-loaded Fed tightening should reinforce U.S. dollar strength in the near-term.” said Lee Hardman, an analyst at MUFG.

Traders also worry about the outlook for the UK economy, with concerns inflation in Britain could end up persistently higher than elsewhere even as economic growth grinds to a halt.

The pound fell as much as 1.1% to $1.1761, a new 27-month low after previously hitting one on Tuesday. Sterling later recovered and by 1515 GMT was at $1.1795

Against the euro, where the pound has fared much better in recent weeks, the British currency was down 0.2% at 84.77 pence.

The current leadership race to succeed Boris Johnson as prime minister and leader of the Conservative Party whittled down the candidates to five on Thursday, with more voting rounds among Conservative lawmakers scheduled for the coming days.

Uncertainty over who will win and the economic policies they will pursue has also cast a shadow over the pound.

But analysts say the strong dollar and the weak euro, which has been driven lower by concerns about soaring natural gas prices and their impact on the regional economy, matter more for the pound right now than the leadership race.

(Reporting by Tommy Reggiori Wilkes; Editing by Raissa Kasolowsky and Jonathan Oatis)

EUR/USD Crumbles To 20-Year Lows

Euro bears went on a rampage today, dragging the EURUSD to levels not seen in 20 years as traders cut bets on European Central Bank (ECB) rate hikes!

The heavy sell-off was triggered by soft economic data from France which not only darkened the already gloomy outlook but fanned fears of a recession in Europe. With ongoing geopolitical tensions obstructing the ECB’s ability to aggressively raise rates like the Fed, the widening interest rate differentials could fuel the EURUSD selloff.

According to Bloomberg, there is now a 60% chance of the parity dream becoming reality by the end of 2022. The last time the EURUSD was parity was back in the first trading week of December 2002.

Before we take a dive into the technicals, it is worth keeping in mind that the euro has depreciated against most G10 currencies today. With the fundamentals swinging in favour of bears, euro weakness could become a key theme this quarter. Although the EURUSD remains our focus, the latest selloff could present fresh opportunities across other euro crosses.

EUR/USD breaches critical support…

The EURUSD has cut through the 1.0350 support like a hot knife through butter.

Prices are heavily bearish on the daily charts as there have been consistently lower lows and lower highs. Bears have a lot of freedom below 1.0350 due to the absence of any key support levels. The next level of interest can be found at 1.0200 and 1.0000. If prices are able to push back above 1.0350, then the EURUSD could retest 1.0480.

EUR/JPY approaches 50-day SMA

After failing to conquer the 144.00 resistance level, the EURJPY could be experiencing a bearish reversal with the breakdown under 141.50 signalling further downside. A weaker euro could drag the EURJPY towards the 138.00 support level. Should bears secure a strong daily close under this point, the next level can be found around 134.50.

EUR/GBP choppy as ever…

There was some action on the EURGBP as prices spiked below the 0.8580 support level before pulling back higher. This currency pair remains a battleground for bulls and bears. Although the overall trend point north, resistance can be found around 0.8680. A daily close below 0.8580 may encourage a selloff towards 0.8500 and 0.8440.

EUR/AUD wobbles above support

The EURAUD could be gearing up for a breakdown below the 1.5150 support.

It’s been trapped within a range over the last 2 weeks with the pressure growing by the day. Yesterday’s bearish candle suggests that a selloff could be around the corner with 1.5150 acting as the gatekeeper. A breakdown below this level may open the doors towards 1.4900 and 1.4770. Should 1.5150 prove to be reliable support, a move back to 1.5300 could be on the cards.

For more information visit FXTM.

Indices, Oil and Forex Analysis – JPY Turns Red Again

Major Markets Technical Analysis

Indices continue the bearish correction but in a very limited manner. It seems like buyers are in a full control of the situation.

The SP500 is very close to the resistance level on the 23.6% Fibonacci, a breakout of that resistance will be a great confirmation of a buy signal.

NASDAQ is doing pretty much the same but below the 38,2% Fibonacci.

Brent Oil slightly dropped after touching March highs. The sentiment remains positive.

The USDJPY continues the upswing after the pair escaped from the symmetric triangle pattern.

The EURUSD is trying to create a nice Head and Shoulders pattern on a crucial horizontal resistance.

The EURGBP is locked inside of a rectangle. We have to wait for the breakout.

The USDCAD continues sliding aiming for the lower line of the ascending triangle.

The GBPCAD dropped after the price broke the lower line of the flag.

The GBPAUD also dropped but after leaving a small pennant formation.

The GBPJPY is aiming for the 164 resistance after a successful escape from the symmetric triangle pattern.

Traders Edge: Market Briefing Video for 01.06.22

For a look at all of today’s economic events, check out our economic calendar.

Sterling slides after soft PMI data sends UK recession warning

By Samuel Indyk

LONDON (Reuters) -Britain’s pound fell to its lowest level in over a week against the euro after data showed a sharp slowdown in business activity, adding to concerns that the UK could slip into recession later this year.

S&P Global’s flash Composite Purchasing Managers’ Index (PMI), a monthly gauge of the services and manufacturing industries, fell to 51.8 in May from 57.6 in April, its lowest level since February last year.

The preliminary reading was worse than all forecasts in a Reuters poll of economists, which had pointed to a drop to 57.0.

“This sudden deterioration in growth prospects will come as a massive worry to the Bank of England and will certainly throw further rate hikes into question,” said Infinox financial market analyst Richard Perry.

“This further firms our expectation that another one, or at most, two 25bps hikes will be possible before the BoE is required to reassess its tightening outlook.”

Money markets are currently fully pricing in a 25 basis point rate rise from the BoE at its June policy meeting and 114 basis points of tightening by the end of the year, down from around 125 basis points on Friday after strong retail sales data.

At 1420 GMT, the pound was down 1.0% against the euro to 85.80 pence, after earlier touching its weakest level against the single currency since May 12.

Sterling was down 0.6% against the dollar at $1.2522 after earlier falling as much as 0.8% below $1.2500.

In bond markets, British gilt yields declined sharply as investors reassessed the rate outlook following the data.

The yield on the rate-sensitive two-year government bond fell over 15 basis points to 1.418%, the steepest fall since March 1. The 10-year yield was down 11.5 basis points to 1.856%.

The pound was already falling against the euro after European Central Bank chief Christine Lagarde said on Tuesday she saw the ECB’s deposit rate at zero or “slightly above” by the end of September, implying an increase of at least 50 basis points from its current level.

“The bounce in EUR/GBP owes to the broad move higher in the euro on the back of comments in the past two days from the ECB’s Lagarde on the near-term prospect of rate hikes,” said Danske Bank chief analyst, FX and rates strategy, Jens Naervig Pedersen before the data.

“We could see EUR/GBP rise to around 0.86 short term, as relative monetary policy will continue to favour the euro,” Pedersen added.

Meanwhile, British public borrowing in the 2021/22 financial year fell to 144.6 billion pounds ($180.88 billion) or 6.1% of GDP, figures from Britain’s Office for National Statistics showed on Tuesday, down by more than 7 billion pounds from an initial ONS estimate last month.

($1 = 0.7994 pounds)

Graphic: World FX rates in 2022http://tmsnrt.rs/2egbfVhGraphic: Trade-weighted sterling since Brexit votehttp://tmsnrt.rs/2hwV9Hv

(Reporting by Samuel Indyk; Editing by Kirsten Donovan, Jon Boyle and Susan Fenton)

EUR/GBP Moves Away From Crucial Long-term Support

Fundamentals and Latest News

News crucial for this pair is flowing in constantly, giving the EURGBP fuel for some nice swings. Yesterday, the Euro was lifted by rumors that the European Central Bank (ECB) will finally act and increase interest rates. Today, we received PMs from the Eurozone and from the UK. The important one was the UK PM, which was worse than expectations and brought us a bearish sentiment. Quite surprising if you ask me but hey, sometimes markets don’t even need a reason to move.

EUR/GBP Technical Analysis

EUR/GBP Weekly Chart

Today’s rise of the EURGBP is absolutely crucial from a technical point of view. The weekly chart shows us a long-term situation. The important thing here is the decisive rejection of the 0.83 support (green). This support is absolutely crucial for the long-term situation and as log as we are above, the main sentiment is positive.

Today’s surge, managed to break two crucial dynamic resistances (black). At some point, we can also see an inverse head and shoulders pattern (orange) but it’s not the handsome one which you can see on textbooks. Nevertheless, the bounce from 0.83 is a fact and the log-term sentiment remains positive and stays this way as long as the price stays above the black lines. It’s possible for the price to return below the black lines, but for now it’s less likely to happen.

Sterling set for its biggest weekly rise since Dec 2020 vs dollar

(Reuters) -Sterling was set for its biggest weekly gain since December 2020 against a weakening dollar as the latest economic data suggested the market might not need to scale back its expectations for Bank of England rate hikes much further.

The U.S. dollar was headed for its worst week since early February, showing fatigue after the currency’s breathless 10%, 14-week surge.

Money markets are fully pricing in another 25-basis-point interest rate rise at the BoE’s June meeting and 128 basis points of tightening by the end of the year, up from around 115 bps on Tuesday right after solid labour market data.

British retail sales jumped unexpectedly in April, official data showed on Friday.

On Friday, the pound was down flat against the dollar at $1.246, after rising 1.65% this week – the biggest weekly gain since the 2.3% in the week ending Dec 18, 2020.

“UK retail sales have come in a little better than expected and break/suspend the narrative that the cost of living squeeze is large enough to derail the Bank of England tightening cycle,” ING analysts said.

This week’s data showed Britain’s jobless rate hitting a 48-year low in the first three months of 2022. Consumer price inflation rose 9% in April, while a Reuters poll of economists had pointed to a reading of 9.1%.

According to Unicredit analysts, long-term models suggest the British currency is undervalued against the dollar and the euro, but “less aggressive BoE, focusing more on UK GDP growth concerns, might weigh on sterling”.

They expect the BoE to hike rates much less than the forward rate, creating a “repricing risk for the GBP, as long as investors further scale back rate-hike expectations”.

However, the central bank’s chief economist, Huw Pill, said on Friday the BoE would need to raise interest rates further to combat the risk of self-perpetuating price rises.

Sterling rose 0.1% versus the euro to 84.74 pence.

“New-found hawkishness at the ECB means that EUR/GBP may struggle to sustain a move below 0.8450 before returning to 0.8600,” ING analysts said.

The pound has been showing a high correlation with risky assets, while their outlook remains challenging in the face of central banks’ tightening and risks of an economic slowdown.

(Reporting by Stefano Rebaudo; Editing by Alison Williams)

Mid-week Technical Outlook: FX Minors & Crosses In Focus

Global equities were tugged and pulled by inflation fears, rate hike expectations, and ongoing geopolitical risks. In the currency space, king dollar loosened its grip on the FX space allowing G10 majors to bounce while lingering below its 200-day Simple Moving Average.

Over the past few weeks our attention has been on king dollar but this afternoon the spotlight shines on minor and cross currency pairs. The minors are normally referring to non-USD forex currency pairs while crosses are pairs that do not contain the dollar as either the base or quote currency.

Although minors and crosses are slightly less popular than the majors and often experience more wild swings due to less liquidity in the markets, they still present trading opportunities. So, if you have had enough of the dollar and would like something different, check out the setups below!

GBPJPY wobbles above 160.00

After rallying the previous session, the GBPJPY looks tired and may be running on empty fumes. Prices remain bearish on the daily timeframe with the candlesticks trading within a negative channel. A breakdown below 160.00 could result in a steeper decline towards 157.50 and lower. Should 160.00 prove to be reliable support, an incline back towards 162.00 could be on the cards.

GBP/JPY Daily chart

EUR/JPY ready to resume selloff?

The technical bounce on the EURJPY could be over if prices fail to push above 137.00. Bears still remain in some control with prices respecting a bearish channel on the daily charts. A decline back under the 50-day Simple Moving Average could trigger a selloff towards 134.50 and 133.00, respectively. If prices are able to break above 137.00, then a move towards 138.00 could become reality.

EUR/JPY Daily chart

EUR/GBP choppy as ever

There is a lot going on with the EURGBP as bulls and bears battle it out. Prices remain as choppy as ever but the trend could turn negative if prices close below 0.8420. Sustained weakness below this level could result in a further decline towards 0.8380. If prices are able to bounce from 0.8420, the next key level of interest can be found at 0.8500.

EUR/GBP Daily chart

EUR/AUD breakdown or bounce?

As the subtitle says, the EURAUD can either experience a technical bounce from 1.4900 or breakdown below this point to hit 1.4600. The trend looks bullish on the daily charts but prices are trading below the 100 and 200-day Simple Moving Average. Should 1.4900 prove to be reliable support, a move back towards 1.5300 could on the cards.

EUR/AUD Daily chart

AUD/NZD higher highs and higher lows…

This currency pair remains firmly bullish on the daily timeframe. There have been consistently higher highs and higher lows while the MACD trades to the upside. A solid breakout and daily close above 1.1100 could encourage a move higher towards 1.1200. A daily close below 1.0750 could trigger a selloff towards 1.08200.

AUD/NZD Daily chart

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Week Ahead: Sterling to Sink to Greater Depths?

The selloff across bonds, stocks, and even cryptos has taken a steeper dive so far this month, amid worries that central bank rate hikes could choke the global economy.

Economic Calendar for Next Week

Investors and traders worldwide will be scouring the following economic data and events in the coming week, looking for reasons as to whether the selloff should be extended or perhaps take a breather:

Monday, May 16

JPY: Japan April PPI
CNH: China April industrial production, retail sales, property sales, and unemployment rate
EUR: EU Commission releases Spring economic forecasts
USD: New York Fed President John Williams speech

Tuesday, May 17

AUD: RBA releases May policy meeting minutes
GBP: UK March unemployment and April jobless claims
EUR: Eurozone 1Q GDP and employment
USD: US April retail sales and industrial production
USD: Fed speak
Fed Chair Jerome Powell
Chicago Fed President Charles Evans
Cleveland Fed President Loretta Mester
Philadelphia Fed President Patrick Harker
St. Louis Fed President James Bullard
Q1 earnings: Walmart, Home Depot, Vodafone, JD.com

Wednesday, May 18

JPY: Japan 1Q GDP
GBP: UK April CPI and PPI, BOE MPC member Catherine Mann speech
US crude: EIA weekly US crude inventories
CAD: Canada April CPI
USD: Philadelphia Fed President Patrick Harker speech
Q1 earnings: Tencent, Target

Thursday, May 19

JPY: Japan April external trade
AUD: Australia April unemployment
ZAR: South Africa Reserve Bank rate decision
EUR: ECB publishes April meeting accounts
USD: US weekly initial jobless claims
Xiaomi Q1 earnings

Friday, May 20

JPY: Japan April CPI
GBP: UK April retail sales, May consumer confidence
EUR: Eurozone May consumer confidence

British Pound Latest Moves and Fundamentals

The GBP index, which measures Sterling’s performance against six of its G10 peers in equal weights, is trading around its lowest levels since December 2020.

GBP/USD Daily chart

This index could return to recent lows if the coming week’s data on jobs, inflation, retail sales, and consumer confidence point to more economic woes.

After all, the Bank of England recently highlighted the risk of a recession by year-end.

Darker clouds over the UK economic outlook should keep the GBP index firmly entrenched in the downtrend that has persisted since February, potentially sending this index back towards the 1.47 mark.

The growing downside risks to the UK economy, which are expected to narrow the window of opportunity for further BOE rate hikes, have allowed most of Sterling’s G10 peers to maintain a year-to-date advance against the Pound.

Even the beleaguered euro has seized the opportunity to break out of its downtrend against GBP that had been in place since September 2020.

Last week, EURGBP secured a weekly close above its 50-week simple moving average for the first time since January 2021.

EUR/GBP Weekly chart

And with King Dollar reigning supreme across the FX universe, GBPUSD has been sent to its weakest levels since November 2020.

GBP/USD Daily chart

GBP/USD Price Forecast

We may see even more US dollar strength in the coming week if the scheduled Fed speak does little to douse the prospects of a 75-basis point US rate hike over the summer months.

Such perceived signals for an ultra-hawkish Fed, coupled with dismal data out of the other side of the Atlantic, should heap more downward pressure on GBPUSD and potentially drag ‘cable’ closer to the psychologically-important 1.20 line.

Although GBPUSD’s 14-day relative strength index has broken below the 30 threshold that denotes oversold conditions, any recovery should prove fleeting, as long as the UK economic data suggests that a recession is inevitable and binds the BOE’s hawkish hands, all while the Fed presses ahead with rate hikes galore.

By Lukman Otunuga Senior Research Analyst

Elliott Wave Pattern and Hawkish ECB Pointing Towards Higher EUR/GBP

Forex Fundamentals

Markets are slow, with USD trading in a tight range, while US stocks found some support after breaking to new lows yesterday. The reason for a slow down of trading activity can be due to important US CPI figures later today which can be the main driver for the direction going forward as data is important for FED’s policy decisions.

Early today we are hearing again hawkish ECB comments. ECB’s Villeroy mentioned that they will start raising rates this summer which prevents traders from shorting the EURUSD pair today; it’s stuck in the range. Instead, some of them can be focused more on the EURGBP upside as BOE turned out to be more dovish recently.

Elliot Wave Analysis for EUR/GBP

From an Elliott wave perspective, we see EURGBP changing the direction after five waves down to 0.8200 from where market rallied out of a downward channel so looks like bulls are here, possibly for 0.8660 targets in the near term.

If you like our analysis and I woudl welcome you to check our Premium Analysis at www.wavetraders.com.

Trade well,

Gregor

Most of The Major Instruments Await FOMC in Sideways Movements

Global Markets Technical Analysis

EURUSD is waiting for the FOMC inside of the symmetric triangle pattern.

USDJPY is doing pretty much the same but here, we’re waiting very close to the upper line of this formation.

GBPJPY is forming a descending triangle pattern. The price is currently flirting with the support of this formation.

Gold broke a crucial support on the 1872 USD/oz.

SP500 defended the neckline of the H&S formation with a hammer on a daily chart. A promising start for buyers.

EURGBP is also inside of the symmetric triangle. A breakout to the downside can be catastrophic here.

Brent Oil is also in the group of assets moving sideways inside of the triangle. We are waiting for the breakout..

AUDUSD is testing the neckline of the triple bottom formation. A breakout would mean a buy signal.

Traders Edge: Market Briefing Video for 04.05.22

For a look at all of today’s economic events, check out our economic calendar.

Sterling bounces higher as dollar surge eases

LONDON (Reuters) -The British pound rose on Tuesday, moving away from 21-month lows against the dollar as traders took profits on the recent surge in the U.S. currency ahead of both Federal Reserve and Bank of England monetary policy meetings this week.

The Bank of England (BoE) meeting, which is expected to result in a 0.25-percentage-point rise in interest rates on Thursday, is the big event of the week for sterling.

In recent weeks the pound has fallen sharply as investors have piled into dollars in expectation that the Federal Reserve will raise rates faster than other central banks and that the U.S. economy will hold up better than others in the face of soaring inflation and slowing global growth.

The U.S. central bank will meet on Tuesday and Wednesday and is expected to raise interest rates by 50 basis points – the first of a series of aggressive hikes expected by money markets. Rises totalling 270 basis points by February are priced in.

On Tuesday, sterling climbed 0.5% to as high as $1.2566, compared with a 21-month low of $1.2412 hit last week.

ING analyst are expecting a 0.25-percentage-point BoE rate rise this week.

“We think that would prompt a bit more dovish repricing across the GBP curve and the pound could moderately weaken after the rate announcement,” they said in a note.

“Such weakness should prove more pronounced against the dollar, which could find some more support from the FOMC meeting, and EUR/GBP upside could still be capped to the 0.8450-0.8500 area for now,” they added.

Sterling traders will also be watching UK local elections on Thursday. Prime Minister Boris Johnson’s ruling Conservative Party is expected to suffer losses but most analysts don’t think that will lead to a leadership contest in the short-term.

The pound has held up better against the euro in recent weeks, remaining in a relatively tight trading range.

But on Tuesday, after rising earlier in the day, the pound was last at 84.18 pence, down marginally on the day.

The “BoE have reason not to risk upsetting the consumer too much with drastic hikes, leaving 25bp (basis points) as a compromise,” said Mizuho rates strategists.

(Reporting by Tommy Wilkes Editing by Bradley Perrett and Mark Potter)

Indices and Euro Start the New Month With a Small Bullish Correction

Global Markets Technical Analysis

SP500 finished last week just above the edge. So far, Monday’s starting with a small rise but we are far from the safe zone.

EURUSD climbs higher on the first session in May. The price is currently bouncing of a crucial long-term horizontal support around 1.05.

EURGBP bounced off a neckline of a big Head and Shoulders pattern.

USDJPY continues the upswing after a bounce of the 129.4 support.

Over the last week, Brent Oil tested the lower and the upper line of the symmetric triangle. The breakout from this pattern shows us the direction it will take for the next few days and weeks.

Traders Edge: Market Briefing Video for 02.05.22

For a look at all of today’s economic events, check out our economic calendar.

Sterling set for biggest monthly drop since October 2016 vs dollar

(Reuters) -Sterling rose against the dollar on Friday but was still set for its sharpest monthly drop since October 2016, while edging higher against the euro.

The greenback slipped from 20-year highs against a basket of currencies on Friday but remained on track for the best month in seven years on concerns about the global economy and a hawkish Federal Reserve. [nL2N2WR1KY]

Investors’ focus remained on monetary tightening ahead of next week’s policy meeting of the Bank of England, which might cave in to the dovish minority, further weakening the pound.

The British public’s expectations for inflation have fallen after rising for several months, according to a survey that the Bank of England keeps track of as it considers how fast it needs to keep raising interest rates.

“Sterling has always been a risk-on, risk-off currency, and the reason is that Britain has a substantial current account deficit, which gives the currency its high beta status,” said Kamal Sharma, G10 FX strategist at BofA.

“But I think that in the next couple of weeks, the Bank of England, which has been downbeat recently, will be the main investors’ focus.”

Money markets are still pricing in around 145 basis points of further BoE tightening by the end of the year. [IRPR]

Some analysts argued that risk appetite more than monetary divergence would drive the British currency in the near future.

“It looks as though sterling is being traded more on growth prospects,” ING analysts said in a research note.

The pound was up 0.7% against the dollar at $1.2550, after hitting $1.2412 on Thursday, its lowest level since July 2020. It was set for its biggest monthly drop since October 2016 – soon after Britain’s vote to exit the European Union – after falling more than 4.5% in April.

Euro zone inflation inched up to a new record high as expected this month.

The pound was up 0.3% against the single currency at 84.00 pence.

“The problem is that the British economy is facing several supply-chain shocks, some of which are in common with the rest of the world, but there’s one which is unique, namely Brexit,” Shanna argued, adding BofA is bearish on the pound.

Irish Foreign Minister Simon Coveney said the prospect of Britain introducing laws to unilaterally overrule parts of the Northern Ireland protocol governing post-Brexit trade is causing friction in talks with the European Union. [nL5N2WR6SY]

(Reporting by Stefano Rebaudo;Editing by Nick Zieminski)