GBP/USD could now test the 1.1760 level – UOB

GBP/USD remains firm and could extend the upside momentum to the 1.1760 region in the next weeks, suggest Market Strategist at UOB Group Quek Ser Leang and Economist Lee Sue Ann.

Key Quotes

24-hour view: “While we expected GBP to strengthen yesterday, we were of the view ‘1.1600 is unlikely to come into view for now’. In other words, we did not expect the strong surge that sent GBP to a high of 1.1639. Upward momentum is still strong and GBP is likely to rise further, albeit likely at a slower pace. Resistance levels are at 1.1700 and 1.1760. The latter level is unlikely to be challenged today. Support is at 1.1590 but only a break of 1.1540 would indicate that GBP is not strengthening further.”

Next 1-3 weeks: “When GBP was trading at 1.1300 two days ago (25 Oct), we noted that it is mildly supported and could edge higher. After GBP soared, we highlighted yesterday (26 Oct, spot at 1.1460) that the strong boost in momentum is likely to lead to further strength. We indicated that the next resistance is at 1.1600. GBP took out 1.1600 in London trade yesterday and surged to a high of 1.1639. The price action suggests GBP is still strong and is likely to strengthen further. The next level to monitor is at 1.1760. The GBP strength is intact as long as it does not break the ‘strong support’ at 1.1440 (level was at 1.1310 yesterday).”

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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 surges past 1.2200 mark amid softer US inflation data-inspired USD slump

GBP/USD adds to its intraday gains and rallies to a one-and-half-week high amid a brutal USD selloff.

A weaker US CPI report pushed back expectations for a larger Fed rate hike and weighed on the USD.

A strong rally in the US equity futures exerts additional downward pressure on the safe-haven buck.

The GBP/USD pair catches aggressive bids and surges past the 1.2200 mark, hitting a one-and-half-week high during the early North American session.

The intraday US dollar selling picks up pace following the release of weaker US consumer inflation figures, which, in turn, provides a goodish lift to the GBP/USD pair. The Bureau of Labour Statistics reported that the headline US CPI remained flat in July against the 0.2% rise anticipated. Adding to this, the yearly rate decelerated to 8.5% during the reported month, again missing estimates pointing to a fall to 8.7% from the 9.1% in June.

Furthermore, core inflation, which excludes food and energy prices, came in at 0.3% MoM and held steady at a 5.9% YoY rate vs 0.5% and 6.1% anticipated, respectively. The softer data now seems to have pushed back market expectations for a larger Fed rate hike move at the September policy meeting and prompts aggressive selling around the USD. Apart from this, a strong rally in the US equity markets exerts additional pressure on the safe-haven buck.

The strong intraday move up allowed the GBP/USD pair to break through the 1.2130-1.2140 resistance zone, triggering an aggressive short-covering move. Hence, it remains to be seen if the momentum is backed by genuine buying or turns out to be a stop run amid the Bank of England's gloomy economic outlook.

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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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EUR/USD: Bears keep the pressure around 1.0430

EUR/USD looks stuck in the 1.0430 region.

Germany labour market report surprised to the downside.

EMU jobless rate ticked lower to 6.6% in May.

The single currency remains under pressure and motivates EUR/USD to navigate in the lower end of the range around 1.0430 on Thursday.

EUR/USD looks to data, risk trends

EUR/USD remains offered and extend the leg lower after being rejected from the 1.0615 region earlier in the week. The corrective downside in the pair comes in response to the resurgence of the risk aversion sentiment and the resumption of the buying bias in the greenback.

In addition, the decline in the German 10y Bund yields - now approaching the 1.40% zone – also collaborates with the sour mood around the European currency on Thursday.

Further selling hurt the euro after the inaction seen in Chair Lagarde in recent comments, as she only reiterated the bank’s intention to raise rates by 25 bps next month, while further rate hikes would hinge on the progress of domestic fundamentals.

Earlier in Germany, Retail Sales contracted 3.6% in the year to May, the Unemployment Rate ticked higher to 5.3% and the Unemployment Change increased by 133K persons, both prints for the month of June.

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 AUD/USD remains on the defensive near 0.7200 mark, downside seems cushioned

AUD/USD came under some renewed selling pressure on Wednesday amid modest USD strength.

A goodish pickup in the US bond yields and a softer risk tone benefitted the safe-haven greenback.

A break below the 0.7150 area is needed to confirm a bearish outlook ahead of the US CPI on Friday.

The AUD/USD pair met with a fresh supply on Wednesday and erased the previous day's modest gains back closer to the 100-day SMA resistance. The pair remained on the defensive heading into the North American session and was last seen trading around the 0.7200 mark, down nearly 0.35% for the day.

A combination of factors provided a modest intraday lift to the US dollar, which, in turn, exerted some downward pressure on the AUD/USD pair. Investors remain concerned that the global supply chain disruption caused by the Russia-Ukraine war could push consumer prices even higher and force the Fed to tighten its monetary policy at a faster pace. This, in turn, triggered a fresh leg up in the US Treasury bond yields, which, along with a softer risk tone, offered some support to the safe-haven greenback.

The market sentiment remains fragile amid doubts that central banks can hike interest rates to curb inflation without impacting economic growth. This, to a larger extent, overshadowed a more hawkish Reserve Bank of Australia (RBA) decision on Tuesday. It is worth recalling that the RBA raised interest rates by the most in 22 years and indicated that further tightening is in the pipeline as it battles to restrain surging inflation. The markets were quick to price in the real risk of another 50 bps rise in July.

That said, the AUD/USD pair's inability to gain any meaningful traction and repeated failures near the 100/200-day SMA confluence suggests that the recent bounce from the YTD low has run out of steam. Traders, however, seemed reluctant to place aggressive bearish bets and preferred to wait for the US consumer inflation figures, scheduled for release on Friday. Hence, it will be prudent to wait for sustained weakness below the 0.7150 horizontal support before positioning for any further depreciating move.

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GBP/USD needs to clear 1.2660 to extend its bullish rally

GBP/USD has lost its traction but managed to hold above the 1.26 level. The pair needs to clear 1.2660 to remain bullish.

Cable needs to flip 1.2660 into support to attract buyers

“The Conference Board's Consumer Confidence Index for May and the Housing Price Index data for March will be featured in the US economic docket. In case investors are reminded of the negative impact of inflation on consumer confidence, Wall Street's main indexes could come under bearish pressure and make it difficult for GBP/USD to gather bullish momentum.”

“In case cable breaks below 1.26 (psychological level, static level), the next immediate support aligns at 1.2570 (200-period SMA, 50-period SMA). If that latter support fails, this could be seen as a significant bearish development and open the door for additional losses toward 1.2540 (former resistance, static level).”

“The pair needs to settle above 1.2630 (ascending trend line) and clear 1.2660 (static level) to test 1.27 (static level, psychological level).”

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GBP/USD rallies to near two-week high, eyeing 1.2500 ahead of US data/Fed's Powell

A combination of factors prompted aggressive short-covering around GBP/USD on Tuesday.

The British pound drew support from better-than-expected domestic employment figures.

A turnaround in the risk sentiment undermined the safe-haven USD and remained supportive.

Investors now eye the US Retail Sales for a fresh impetus ahead of Fed Chair Powell’s remarks.

The GBP/USD pair added to its strong intraday gains and shot to a nearly two-week high, around the 1.2480 region during the first half of the European session.

The British pound strengthened across the board on Tuesday after the UK Office for National Statistics reported that the number of people claiming unemployment-related benefits dropped by 56.9K in April. This was well below expectations for a fall by 38.8 and the 46.9K decline reported in the previous month. Adding to this, the ILO Unemployment Rate in the UK edged lower to 3.7% in three months to March from 3.8% prior.

Apart from this, the ongoing US dollar profit-taking slide from a two-decade high assisted the GBP/USD pair to build on its recent bounce from the 1.2155 region, or the lowest level since September 2020. Spot prices gained traction for the third successive day, taking along some short-term trading stops placed around the 1.2400 round-figure mark. The subsequent strength might have already set the stage for additional near-term gains.

That said, the UK-EU impasse over the Northern Ireland protocol could act as a headwind for sterling. UK Foreign Secretary Liz Truss will set out how the government plans to change the rules on goods moving between Britain and Northern Ireland and how it could override parts of the Brexit deal. Apart from this, the Bank of England's warning that the UK economy will slide into recession this year might cap gains for the GBP/USD pair.

Traders might also be reluctant to place aggressive bets and prefer to wait on the sidelines ahead of the key US macro data and Fed Chair Jerome Powell's appearance later this Tuesday. The US economic docket highlights the release of monthly Retail Sales figures. Meanwhile, Powell's remarks will be scrutinized for clues about the possibility of a 75 bps rate hike in June, which will influence the USD and provide a fresh impetus to the GBP/USD pair.

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USD/CHF slides further below 0.9900 mark amid weaker USD, focus remains on US CPI

USD/CHF corrected sharply on Wednesday and snapped a four-day winning streak.

Retreating US bond yields prompted some USD profit-taking and exerted pressure.

The risk-on mood might undermine the safe-haven CHF and limit any further losses.

The focus remains glued to the release of the latest US consumer inflation figures.

The USD/CHF pair added to its intraday losses and dropped to a fresh daily low, around the 0.9870 area during the first half of the European session.

The pair witnessed heavy selling on Wednesday and snapped a four-day winning streak to its highest level since May 2019, around the 0.9975 touched the previous day. The ongoing retracement slide in the US Treasury bond yields forced traders to lighten their US dollar bullish bets. This, in turn, was seen as a key factor that exerted downward pressure on the USD/CHF pair.

The downside, however, seems limited amid a generally positive tone around the equity markets, which tends to undermine the safe-haven Swiss franc. Apart from this, the prospects for a more aggressive policy tightening by the Fed should help limit the downside for the buck and lend support to the USD/CHF pair, warranting caution before placing fresh bearish bets.

The Fed is widely expected to tighten its monetary policy at a faster pace to combat stubbornly high inflation. In fact, the markets are pricing in a 200 bps rate hike for the rest of 2022 amid concerns that China's zero-covid policy and the war in Ukraine would result in tight global supply chains. This could push already elevated consumer prices even higher.

Hence, the focus will remain glued to the US CPI report, due for release later during the early North American session. The data could influence the Fed's tightening path, which, in turn, would influence the near-term USD price dynamics. Hence, it will be prudent to wait for strong follow-through selling before confirming that the USD/CHF pair has topped out.

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