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Joined: Nov. 2021
||Posted: Aug. 12 2022,04:49
POUND PLAGUED BY BEARISH TECHNICAL INDICATORS
Four weeks ago, GBP/USD slipped to its lowest level since the pandemic-induced market turmoil in March 2020. A weekly momentum indicator flashed oversold conditions and the currency pair rebounded 4.5% from $1.1761 to $1.2293 in three weeks. One third of net short GBP positions were unwound during this period, which has increased the risk of another slide on the horizon.To get more news about IC Markets外汇, you can visit wikifx.com official website.
The main catalyst steering GBP/USD lower back then was the widening interest rate gap between the US and UK as Federal Reserve (Fed) rate expectations surged due to an upside surprise in US inflation. On Wednesday afternoon, the latest US consumer inflation data is published and another upside surprise could drag GBP/USD back under $1.20. The 50-day moving average (currently $1.2150) has acted as a key resistance over the past few days and although GBP/USD broke north of its steep 2022 descending channel three weeks ago, a retest of this channel means a potential move below $1.18 ahead of the next UK and US central bank meetings in September.
Is US inflation peaking?
Americans' expectations for future inflation plunged in July, at least according to one closely watched survey. Attention turns to July’s US consumer price index, released tomorrow afternoon, for signs the pace of price rises has peaked, which could limit the US dollar’s uptrend.
Yesterday, the New York Fed survey showed US consumer inflation expectations for the year ahead fell to 6.2% in July of 2022, the lowest reading in five months and from a record high of 6.8% in June. Expectations fell sharply for gas by 4.2 percentage points - the second largest drop ever and food price changes fell 2.5 percentage points - the biggest decline on record. This helped ease the upward pressure on US interest rates, which jumped after the strong jobs report published last Friday. Moneymarkets are now pricing a 65% chance of another 75-basis point Fed hike, down from the 75% probability at the end of last week.
Europe’s energy woes to limit euro
The global energy crisis has been mounting for months and Europe is at the epicentre. The situation is being exacerbated by Europe’s reliance on Russian gas imports, Russia’s squeezing of natural gas flow and heat waves drying up rivers. The euro faces a multitude of headwinds, meaning it may not capitalise even if the USD weakens.
As a net energy importer, European nations are fighting an energy crisis, attempting to achieve 90% gas storage level capacity ahead of the winter months. Europe is now forced to operate in a constant state of uncertainty over Russian gas supplies, but the extreme weather conditions at present is also making it harder to cool nuclear power plants, which threatens to push already high-power prices even higher. The resultant negative terms of trade shock for Europe has been a key determinant of the euro’s demise this year and without signs of easing, the common currency could endure further weakness. Despite the risk of EUR/USD falling back below parity, GBP/EUR’s fortune is difficult to forecast given the energy crisis looming over the UK too. GBP/EUR failed to reclaim the €1.20 handle last week and continues to struggle to hold above its 100-month moving average (currently €1.1923).