GBP/USD: Rally could extend to 1.1910 and 1.2000 – UOB

Extra upside in GBP/USD could revisit the 1.1910 and even 1.2000 in the short-term horizon, suggested Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “The deeply overbought rally in GBP from Friday appears to be overdone and GBP is unlikely to advance much further. For today, GBP is more likely to trade between 1.1725 and 1.1860.”

Next 1-3 weeks: “Despite surging by an outsized 4.08% last week, solid upward momentum suggests there is room for the rally in GBP to extend to 1.1910, possibly 1.2000. The upside risk is intact as long as GBP does not break below the ‘strong support’ level of 1.1660.”

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EURUSD Price Analysis: Solid resistance emerges around 1.0100

• EURUSD comes under pressure near 1.0100 on Wednesday.
• The surpass of this area could allow for extra gains near term.

EURUSD’s strong recovery appears to have met a tough hurdle at the 1.0100 zone so far this week.

If the pair manages to surpass this zone in a sustainable fashion, it could then challenge the September top at 1.0197 (September 12) prior to the August high at 1.0368 (August 10).

While above the 9-month resistance line, today near 0.9840, extra gains look likely.

In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0450.

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EURUSD: On course to test the October 13 low near 0.9635 – BBH

EURUSD extends the corrective decline and revisits the 0.9750 region. Economists at BBH expect the worl's most popular currency pair to challenge the October 13 low near 0.9635.

ECB tightening expectations have fallen back a bit

“EURUSD is on track to test the October 21 low near 0.9705 and then the October 13 low near 0.9635.”

“With a big chunk of the eurozone already tipping into recession, can the ECB hike as aggressively as anticipated? It appears that the market is starting to have it doubts.”

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GBP/USD remains stuck between two key DMAs ahead of central banks’ bonanza

• GBP/USD starts November on the right footing amid USD weakness, risk flows.
• Fed and BOE are set to hike policy rates by 75 bps each this week.
• Cable is likely to extend range play between 100 and 50DMAs.

GBP/USD is consolidating the rebound above 1.1500 so far this Tuesday, kicking off November on the right footing. Investors brace for the critical Fed and BOE rate hike decisions, with both the central banks set to announce 75 bps rate increases later this week.

Ahead of the central banks’ bonanza, investors are breathing a sigh of relief, thanks to the FX market repositioning and the rally in Chinese stocks. The risk-on market environment is boding well for the higher-yielding pound sterling at the expense of the safe-haven US dollar.

Attention turns towards the US ISM Manufacturing PMI release, although not much reaction is expected on the data release unless the figure disappoints expectations by a wide margin. Meanwhile, the UK S&P Global Final Manufacturing PMI improved to 46.2 in October vs. 45.8 expected and the first reading of 45.8.

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GBP/USD remains vulnerable, though volatility will drift lower

GBP/USD is on the back foot around 1.1200 as the UK political drama deepens. The British pound remains vulnerable as market pricing for rate hikes looks excessive.

UK political soap opera continues

“The UK political soap opera continues, but Jeremy Hunt’s appointment as Chancellor has separated the politics from economic policy.”

“Ignoring the noise in Westminster, we are left with a dramatic U-turn in fiscal policy, which is now tight enough to harden the economic landing and make the 5.2% that is priced-in for UK rates in 12 months’ time look excessive, outright and relative to the 4.9% priced in for the Fed, or the 3.1% priced for the ECB. This leaves sterling vulnerable, even from here, though surely volatility will drift lower.”

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EUR/USD Price Analysis: Rising bets for a drop to 0.9630

EUR/USD fades part of the post-CPI sharp upside on Friday.

Next on the downside now comes the weekly low near 0.9630.

EUR/USD gives aways most of its recent advance to the area just above the 0.9800 mark at the end of the week.

The continuation of the pullback appears on the cards and carries the potential to challenge the recent weekly low at 0.9631 (October 13) in the short-term horizon.

In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0576.

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EUR/USD could tumble close to the 0.90 level before year-end – MUFG

EUR/USD has dipped under 0.97. Economists at MUFG Bank expect the pair to inch closer to the 0.90 level before the Federal Reserve pauses its hike cycle.

The risks are firmly to the downside

“Over the near-term, the risks are firmly to the downside and we expect a period of further US dollar strength as financial market conditions worsen as asset prices correct further to the downside. This will help push inflation expectations further lower.” 

“The key for any broad turn in US dollar strength must be a pause in the tightening cycle. We suspect the Fed will pause after hiking in December which should allow some EUR/USD correction from levels closer to 0.9000.”

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GBP/USD: Vulnerable to a break of parity later this year – ING

There has been a loose discussion in the market about the prospect of GBP/USD hitting parity for some months. Economists at ING believe that the pair could break under 1.00 this year.

EUR/GBP can make a run towards the March 2020 high of 0.95

“At this stage, we think UK authorities will probably just have to let sterling find its right level. The UK has a reserve currency so it can always issue debt – it’s just a question of the right price.”

“We are still bullish on the dollar this year as Fed leads the deflationary charge and global growth slows. That means GBP/USD is now vulnerable to a break of parity later this year, while – quite unexpectedly – EUR/GBP can make a run towards the March 2020 high of 0.95, with outside risk to the 2008 high of 0.98.”

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ECB's Centeno: No sign of inflation expectations de-anchoring

European Central Bank (ECB) Governing Council member Mario Centeno said on Thursday that he does not see any signs of a de-anchoring of inflation expectations, per Reuters.

"The monetary policy must act at the margin in as small steps as possible," Centeno added and further noted that he expects the effects of unprecedented supply shocks to ease.

Market reaction

These comments don't seem to be having a significant impact on the shared currency's performance against its major rivals. As of writing, EUR/USD was up 0.15% on the day at 0.9991.

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GBP/USD struggles to register any meaningful recovery, hangs near two-and-half-year low

GBP/USD attracts some intraday buying on Monday, though lacks follow-through.

A modest USD pullback from a two-decade high offers some support to the major.

The fundamental/technical backdrop still seems tilted in favour of bearish traders.

The GBP/USD pair stages a modest bounce from its lowest level since March 2020, around the 1.1445 area touched earlier this Monday. Spot prices hit a fresh daily high during the mid-European session, albeit seemed to struggle to capitalize on the move or find acceptance above the 1.1500 psychological mark.

The US dollar trims a part of its early gains to a fresh two-decade high and turns out to be a key factor offering some support to the GBP/USD pair. That said, expectations that the Fed will stick to its aggressive policy tightening path act as a tailwind for the greenback. Apart from this, a bleak outlook for the UK economy continue to undermine the British pound and kept a lid on any meaningful gains for the major.

It is worth recalling that the Bank of England had warned last month that the UK economy will enter a prolonged recession during the last quarter of the year. Adding to this, the British Chambers of Commerce (BCC) downgraded its forecast and now expects the UK economy to record three consecutive quarters of contraction. This, to a larger extent, overshadows the prospects for further interest rate hikes by the UK central bank.

On the UK political front, Liz Truss won the Conservative Party leadership race to become the next British Prime Minister. The news, however, did little to impress bullish traders, suggesting that the path of least resistance for the GBP/USD pair is to the downside. That said, relatively lighter trading volumes on the back of the Labor Day holiday in the US might hold back traders from placing aggressive bearish bets and limit losses.

Nevertheless, the fundamental backdrop still supports prospects for an extension of a three-week-old downward trajectory. Even from a technical perspective, acceptance below the 1.1500 mark and the GBP/USD pair's inability to attract any buyers suggests that the near-term selling bias is still far from being over. Hence, any attempted recovery move could be seen as a selling opportunity and runs the risk of fizzling out rather quickly.

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AUD/USD climbs back above 0.6800 mark amid modest USD weakness, NFP awaited

AUD/USD gains positive traction and reverses a part of the overnight slide to a multi-week low.

The USD moves away from a two-decade high and turns out to be a key factor lending support.

Aggressive Fed rate hike bets to limit the USD losses and cap the pair ahead of the NFP report.

The AUD/USD pair attracts some buying on Friday and recovers a part of the previous day's losses to the 0.6770 area, or the lowest level since July 18. The pair builds on its steady intraday ascent and moves back above the 0.6800 mark, hitting a fresh daily high during the first half of the European session.

The US dollar edges lower and retreats further from a two-decade high touched on Thursday, which, in turn, offers some support to the AUD/USD pair. A softer tone surrounding the US Treasury bond yields keeps the USD bulls on the defensive amid some repositioning trade ahead of the US monthly jobs data. Apart from this, signs of stability in the financial markets further undermine the safe-haven buck and benefit the risk-sensitive aussie.

That said, growing recession fears, economic headwinds stemming from fresh COVID-19 lockdowns in China and the war in Ukraine should cap any optimistic moves. Furthermore, expectations that the Fed will continue to tighten its monetary policy to tame inflation should act as a tailwind for the US bond yields and lend support to the greenback. This, in turn, warrants caution before placing aggressive bullish bets around the AUD/USD pair.

It is worth mentioning that the markets are pricing in a supersized 75 bps rate hike at the September FOMC meeting and the bets were reaffirmed by the recent hawkish remarks by several Fed officials. Traders now look to the US NFP report, which will provide a fresh insight into the economy's health and influence the USD price dynamics. This, in turn, will drive the AUD/USD pair ahead of the Reserve Bank of Australia (RBA) meeting next week.

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GBP/USD needs to clear strong resistance at 1.1870 to gather bullish momentum

GBP/USD has managed to recover above 1.1800 on Friday ahead of FOMC Chairman Jerome Powell’s remarks at the Jackson Hole Symposium. The pair will reveal a buildup of bullish momentum on a break past 1.1870, FXStreet’s Eren Sengezer reports.

Pound struggles to turn bullish ahead of Powell

“In case the chairman's comments suggest that the bank could opt for another 75 basis points in September, GBP/USD could turn south amid a stronger dollar. On the other hand, an optimistic tone inflation outlook should hurt the greenback and help GBP/USD gain traction.”

“On the upside, cable faces key resistance at 1.1870, where the Fibonacci 23.6% retracement level of the latest downtrend is located. Above that level, the 50-period SMA forms interim resistance at 1.1900 ahead of 1.1940 (Fibonacci 38.2% retracement).”

“1.1800 (psychological level, 20-period SMA) aligns as initial support before 1.1750 (static level, end-point of the downtrend) and 1.1720 (Aug. 23 low).”

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US: Weekly Initial Jobless Claims decline to 243K vs. 253K expected

Initial Jobless Claims fell by 2,000 in the week ending August 20.

US Dollar Index trades flat on the day above 108.50.

There were 243,000 initial jobless claims in the week ending August 20, the weekly data published by the US Department of Labor (DOL) showed on Thursday. This print followed the previous week's print of 245,000 (revised from 252,000) and came in better than the market expectation of 253,000.

Further details of the publication revealed that the advance seasonally adjusted insured unemployment rate was 1% and the 4-week moving average was 247,000, an increase of 1,500 from the previous week's unrevised average.

"The advance number for seasonally adjusted insured unemployment during the week ending August 13 was 1,415,000, a decrease of 19,000 from the previous week's revised level," the DOL further announced.

Market reaction

The US Dollar Index edged higher after this data and was last seen trading virtually unchanged on the day at 108.56.

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EUR/USD Price Analysis: A deeper pullback could see 0.9859 retested

EUR/USD clocks new cycle lows in the sub-0.9900 zone.

Further losses could test the December 2002 low near 0.9860.

EUR/USD accelerates the daily losses and briefly breaks below the 0.9900 level, or new cycle lows.

Further weakness remains in the pipeline for the time being. Against that, the breakdown of the 2022 low at 0.9899 (August 23) should leave the door open to a probable deeper retracement to the December 2002 low at 0.9859.

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.0845.

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Dollar firm ahead of jobs report – BBH

Win Thin, Global Head of Currency Strategy at BBH, offers a brief overview of the US dollar price action on Friday and the closely-watched US monthly jobs data. The popularly known NFP report would play a key role in influencing the near-term USD price dynamics amid the recent hawkish remarks by several Fed officials.

Key Quotes:

“DXY has risen 3 of the past 4 days and is trading near 106 currently. We maintain our strong dollar call as Fed officials are making it clear that markets misread the Fed’s commitment to lowering inflation.  The greenback is also getting more traction as data came in stronger than expected.  Today’s jobs data will likely be key for the medium-term dollar outlook.”

“Consensus sees 250k jobs added vs. 372k in June, while the unemployment rate is expected to remain steady at 3.6% and average hourly earnings are seen falling two ticks to 4.9% y/y.  Fed Chair Powell stressed labor market strength many times in his post-decision press conference, which supports our view that the Fed is not about to pivot while the economy remains at full employment.  June consumer credit will be also reported and is expected at $27.0 bln vs. $22.347 bln in May.”

“WIRP suggests a 50 bp hike September 21 is fully priced in, with around 40% odds of a larger 75 bp move.  The swaps market is pricing in 100 bp of tightening over the next 6 months that sees the policy rate peak near 3.5%, followed by the start of an easing cycle over the subsequent 6 months.  The Fed has made it clear that this is not its expected rate path and so we look for a hawkish shift in market pricing in the coming days and weeks if the U.S. data cooperate.”

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EUR/JPY Price Analysis: Outlook negative below the 200-day SMA

EUR/JPY drops further and challenges the key 200-day SMA.

Below the latter, the cross could risk a deeper retracement.

EUR/JPY extends the bearish move well south of the 134.00 mark on Tuesday.

In the meantime, price action in the cross remains entrenched in the negative territory, losing ground for the fourth consecutive session so far.

A break below the key 200-day SMA, today at 133.69, carries the potential to accelerate losses and shift the outlook to negative.

Immediately to the downside now emerges the May low at 132.65 (May 12).

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EUR/USD Price Analysis: Further consolidation appears in store

EUR/USD remains within a consolidative mood near 1.0250.

Extra side-lined trade appears favoured in the near term.

EUR/USD fades the initial pessimism and refocuses on the upper end of the recent range near 1.0260.

The current consolidative mood carries the potential to extend further, at least until the FOMC meeting due later in the week. The upside should remain limited by the weekly high around 1.0280, while the low-1.0100s are expected to hold the downside for the time being.

In the meantime, the pair is expected to remain under downside pressure while below the 5-month support line around 1.0490.

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.0991.

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Far from certain new UK PM could alter gloomy tone weighing on GBP – Rabobank

Commenting on the potential impact of the latest UK political developments on the British pound, Rabobank analysts argued the new British prime minister will be unlikely to substantially alter the gloomy tone that has been weighing on the GBP.

BoE’s mandate may have to be re-examined

"While tax hikes would boost demand, they could also create further inflation and counter the current policy tightening efforts of the BoE.  This could mean further rate rises from the BoE then would otherwise be the case, which would sap the growth potential that Truss hopes to create. "

"Truss at the weekend indicated that the BoE’s mandate may have to be re-examined.  She suggested that Japan may be able to provide examples of best practices.  This, however, only served to highlight how unaware Truss is of the deflation and growth issues that have plagued the BoJ for decades.  Additionally, any further signs from Truss that she could move to reduce the BoE’s independence will not be welcomed by GBP investors given fears that she may make the Bank a lackey to vote-winning government policies."

"Given our expectation that USD strength is likely to persist for around 6 months or so in view of risks to global growth, we foresee the potential for further sharp drops in the value of the pound.  We have revised lower our target for cable from 1.18 and see the potential for a dip to levels as low as 1.12 on a 1-to-3-month view.  The assumes a more sustained break below EUR/USD1.00."

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GBP/USD retreats to 1.2000 post-UK CPI, downside seems cushioned amid softer USD

GBP/USD continued with its struggle to make it through the 1.2040-1.2045 resistance zone.

Stronger UK consumer inflation figures failed to impress the GBP bulls or provide any impetus.

The prevalent USD selling bias acted as a tailwind for the major and helped limit the downside.

The GBP/USD pair edged higher for the fourth successive day on Wednesday and inched back closer to a two-week high touched the previous day. The uptick, however, lacked bullish conviction and once again failed near the 1.2040-1.2045 region. Spot prices quickly retreated a few pips following the release of the UK consumer inflation figures and now seem to have stabilized around the 1.2000 psychological mark.

The UK Office for National Statistics (ONS) reported that the headline UK CPI accelerated to the 9.4% YoY rate in June, surpassing estimates pointing to a rise to 9.3% from the 9.1% in the previous month. The monthly figures showed that the UK CPI rose 0.8% in June as against 0.7% anticipated and the 0.7% previous. Excluding volatile food and energy items, the core inflation gauge, however, eased to 5.8% YoY in June from the 5.9% booked in May. This, in turn, was seen as a key factor that acted as a headwind for the British pound and attracted some intraday selling around the GBP/USD pair.

On the other hand, the US dollar languished near its lowest level since July 6 amid diminishing odds for a more aggressive rate hike by the Federal Reserve later this month. In fact, several FOMC members signalled last week that they will likely stick to a 75 bps rate increase at the upcoming policy meeting on July 26-27. Apart from this, a generally positive tone around the equity markets continued undermining the safe-haven greenback and offered some support to the GBP/USD pair. This makes it prudent to wait for some follow-through selling before positioning for any meaningful slide.

Market participants now look forward to the release of the US Existing Home Sales data, due later during the early North American session. In the meantime, expectations that the recent surge in US inflation to a four-decade high would force the Fed to deliver a larger rate hike later this year should hold back the USD bears from placing aggressive bets. The speculations were reinforced by elevated US Treasury bond yields. This, in turn, should cap gains for the GBP/USD pair.

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GBP/USD slides to three-day low, around 1.2230 area amid modest USD uptick

GBP/USD witnessed some intraday selling on Tuesday and dropped to a three-day low.

Brexit woes, less hawkish BoE expectations continued acting as a headwind for sterling.

Rising US bond yields revived the USD demand and contributed to the intraday selling.

The GBP/USD pair retreated nearly 60 pips from the daily swing high touched during the early European session and dropped to a three-day low, around the 1.2235-1.2230 region in the last hour.

The latest Brexit-related development over the Northern Ireland Protocol has raised the risk of fresh tension between Britain and the European Union. In fact, the UK House of Commons on Monday voted 295 to 221 in favour of a controversial bill that would unilaterally overturn part of Britain's divorce deal from the EU agreed in 2020.

Apart from this, speculations that the Bank of England (BoE) will adopt a more gradual approach towards raising interest rates amid fears of a UK recession acted as a headwind for the British pound. This, along with the emergence of some US dollar buying dragged the GBP/USD pair away from over a one-week high touched the previous day.

The risk-on flow pushed the US Treasury bond yields higher, which, in turn, assisted the USD to reverse its modest intraday losses. That said, reduced bets for a more aggressive policy tightening by the Fed might hold back the USD bulls from placing aggressive bets and help limit deeper losses for the GBP/USD pair, at least for the time being.

The recent decline in commodity prices now seems to have eased concerns about the persistent rise in inflation. This, along with the worsening economic outlook, forced investors to reassess expectations for a faster policy tightening by the Fed. Hence, the market focus will remain glued to Fed Chair Jerome Powell's appearance on Wednesday.

The BoE Governor Andrew Bailey is also due to speak at the ECB forum in Sintra, Portugal on Wednesday, which would help investors determine the next leg of a directional move for the GBP/USD pair. In the meantime, traders on Tuesday will take cues from the US macro data - the Conference Board's Consumer Confidence Index and Richmond Manufacturing Index.

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