GBPUSD eases from multi-day high, still well bid below mid-1.1400s amid softer USD

• GBPUSD gains traction for the second successive day amid sustained USD selling.
• Hopes for less aggressive Fed rate hikes, the risk-on impulse weighs on the buck.
• The BoE's gloomy outlook might act as a headwind for the Sterling and cap gains.

The GBPUSD pair attracts some buying following an early dip to the 1.1290 area on Monday and is building on the previous session's goodish rebound from a two-week low. This marks the second successive day of a positive move and lifts spot prices to the 1.1475 region, or a three-day high during the mid-European session.

The US Dollar adds to the post-NFP heavy losses and drops to over a one-week low, which, in turn, is seen as a key factor pushing the GBPUSD pair higher. The mixed results from Friday's release of the US jobs report fueled speculations that the Federal Reserve might slow the pace of its policy tightening. This, along with a generally positive tone around the equity markets, continues to weigh on the safe-haven greenback.

That said, worries about the headwinds stemming from China's commitment to maintaining its economically disruptive zero-COVID policy might keep a lid on the optimism. Moreover, the markets are still pricing in the possibility of at least a 50 bps Fed rate hike move in December. This remains supportive of elevated US Treasury bond yields, which should act as a tailwind for the buck and cap the upside for the GBPUSD pair.

Apart from this, the Bank of England's dovish rate hike last week warrants some caution for aggressive bullish traders. It is worth recalling that the UK central bank raised interest rates by 75 bps - its most forceful act to tame inflation since 1989 - but indicated a lower terminal peak than is currently priced into markets. Moreover, the BoE said that it expects a recession to last for all of 2023 and the first half of 2024.

This, in turn, suggests that any subsequent move up might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly. There isn't any major market-moving economic data due for release on Monday. Hence, the US bond yields, along with the broader market risk sentiment, will play a key role in influencing the USD price dynamics and produce short-term trading opportunities around the GBPUSD pair.

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GBP/USD could test 1.1300 on a dovish BoE – ING

GBP/USD continues to fluctuate at around 1.15. But a USD-positive FOMC and a dovish surprise by the Bank of England (BoE) could drag cable down to 1.13, economists at ING report.

EUR/GBP may climb back into the 0.8650-0.8700 area

“We continue to highlight the risk of a dovish surprise (50 bps hike) by the BoE tomorrow. The combination of a USD-positive FOMC and a GBP-negative BoE means cable could test 1.1300 by the end of the week.”

“EUR/GBP may climb back into the 0.8650-0.8700 area in the coming days.”

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GBP will likely continue to be under pressure in the time to come – Nordea

In the UK, rates have continued their fall on a policy U-turn. Still, economists at Nordea see more pain ahead for the British pound.

The policy U-turn will lessen the GBP blow, but it is not enough

“The proposal of the UK government – lower taxes and higher spending financed by more debt – broke havoc in the gilt markets while sending the pound in a free fall. Since then UK markets have stabilised. But it takes a long time to build up trust which can be easily lost in a moment.”

“Investors are unlikely to have strong renewed confidence in UK’s governance no matter who take over the helm – trust takes years to build, seconds to break and forever to repair.”

“The poor economic fundamentals in the UK, sky-high inflation, financial imbalances and pension funds under strain will continue to weigh upon the pound.”

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EUR/USD Price Analysis: Key resistance lies at the parity zone

EUR/USD wobbles around the 0.9800 zone ahead of NFP.

Bullish attempts face a tough barrier at the parity level.

EUR/USD gyrates around the 0.9800 region ahead of the release of US Nonfarm Payrolls on Friday.

The resumption of the buying interest is expected to meet a solid hurdle at recent peaks around the parity zone. Ideally, EUR/USD should leave behind this key resistance zone in the near term to allow for the continuation of the rebound.

In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0616.

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EUR/USD Price Analysis: Bears now target 0.9500

EUR/USD drops for the seventh straight session and tests 0.9535.

Below the 2022 low at 0.9535 comes the 0.9500 region.

EUR/USD extends the leg lower to the proximity of 0.9530 earlier on Wednesday, an area last traded back in June 2002.

Odds for extra weakness in the European currency remain well on the table so far with the immediate target at the 2022 low at 0.9552 (September 26). A deeper drop could challenge the round level at 0.9500 ahead of the weekly low at 0.9411 (June 17 2002).

In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0667.

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EUR/USD Price Analysis: Scope for further losses near term

EUR/USD bounces off fresh cycle lows near 0.9550.

Extra downside could revisit the 0.9411 level near term.

EUR/USD keeps the bearish note well in place and drops to new 2-decade lows near 0.9550, where some initial contention seems to have emerged.

Rising prospects for extra weakness in the European currency remain well on the table for the time being. That said, the loss of the 2022 low at 0.9552 (September 26) should leave the pair vulnerable to a challenge to the round level at 0.9500 prior to the weekly low at 0.9411 (June 17 2002).

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.0685.

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US Dollar Index Price Analysis: Bearish moves seen as buying opportunities

DXY climbs to fresh highs near 112.00 before losing momentum.

Further upside remains well on the cards for the dollar near term.

DXY corrects lower after two consecutive daily advances, including new 20-year highs just below the 112.00 mark earlier on Thursday.

The prospects for extra gains in the dollar should remain unchanged as long as the index trades above the 7-month support line near 106.80. That said, occasional bouts of weakness could be deemed as buying opportunities with the immediate target at the 2022 high at 111.81 (September 22).

In the longer run, DXY is expected to maintain its constructive stance while above the 200-day SMA at 101.95.

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US Dollar Index to extend upward momentum on a break above 111 – SocGen

The US Dollar Index (DXY) moves sideways slightly above 109.50. Economists at Société Générale expect the index to enjoy further gains on a break past 111.

Short-term downtrend likely on a dip under 107.60

“If the index establishes itself above the high formed earlier this month at 111 – which is also a graphical level, the up move is expected to extend further towards next projections at 112.60/113.00.” 

“It is worth noting that the daily MACD has started posting negative divergence. Although this is not a reversal signal, it does point towards receding upward momentum.”

“Defending the 50-DMA at 107.60 would be essential for persistence in uptrend. Should a break materialize, a short-term downtrend is likely.”

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GBP/USD remains on the defensive amid modest USD uptick, eyes US data for fresh impetus

GBP/USD comes under renewed selling pressure on Thursday, though lacks follow-through.

Aggressive Fed rate hike bets revive the USD demand and exert some downward pressure.

A positive risk tone caps the safe-haven buck and helps limit the downside for the major.

The GBP/USD pair struggles to capitalize on the previous day's modest uptick and meets with a fresh supply on Thursday. Spot prices remain on the defensive through the first half of the European session, though manage to hold above the 1.1500 psychological mark.

The US dollar catches fresh bids amid expectations for a more aggressive policy tightening by the Fed and turns out to be a key factor exerting some downward pressure on the GBP/USD pair. The stronger US consumer inflation data released on Tuesday all but confirmed that the Fed will hike interest rates at a faster pace. In fact, the implied odds for a full 1% lift-off at the September FOMC meeting currently stand at 30%.

Furthermore, the markets have been pricing in the possibility of another supersized Fed rate hike move in November. This remains supportive of elevated US Treasury bond yields and continues to underpin the greenback. That said, a generally positive risk tone is capping gains for the safe-haven buck. Apart from this, prospects for a 75 bps rate hike by the Bank of England on September 22 offer support to the GBP/USD pair.

This makes it prudent to wait for strong follow-through selling before positioning for an extension of the post-US CPI sharp retracement slide from a two-week high. In the absence of any relevant economic data from the UK, traders look forward to the US macro releases for some impetus later during the early North American session.

Thursday's US economic docket features the release of monthly Retail Sales figures, Weekly Initial Jobless Claims, Regional Manufacturing Indices, and Industrial Production data. This, along with the US bond yields and the broader risk sentiment, will influence the USD and produce short-term trading opportunities around the GBP/USD pair.

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EUR/USD: Further worsening of energy crisis can trigger a drop to the 0.96-0.97 area – ING

Post the European Central Bank (ECB) meeting, the energy crisis should remain the key driver for the euro. Therefore, economists at ING expect the EUR/USD pair to remain skewed to the downside.

The 0.98-0.99 area could prove to be a near-term anchor

“We expect the energy story to return firmly to the driving seat for EUR/USD after the post-ECB reaction. Barring a very hawkish surprise, this should keep EUR/USD below parity and prevent it to reconnect with the more supportive rate differential.” 

“The 0.98-0.99 area could prove to be a near-term anchor for EUR/USD, but a further worsening of the energy crisis and/or further dollar strengthening can trigger a drop to the 0.96-0.97 area.”

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EUR/JPY Price Analysis: The 142.30 region emerges as the next target

EUR/JPY adds to Friday’s small gains below 140.00.

The next hurdle of note turns up at the 142.30 zone.

EUR/JPY alternates gains with losses around 139.00 after bottoming out in earlier lows near 138.70 on Monday.

Extra gains in the cross are now favoured once it clears the recent high at 140.74 (September 2). Beyond this level, another visit of the weekly top at 142.32 (July 21) should re-emerge on the horizon prior to the 2022 peak at 144.27 (June 28).

While above the 200-day SMA at 134.54, the prospects for the pair should remain constructive.

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EUR/USD to decline towards the 0.95 over the coming month – Rabobank

On Wednesday, EUR/USD closed at its highest level since mid-August. Nevertheless, economists at Rabobank expect the pair to slide towards 0.95 in the next month.

USD strength to remain in place for a further six months or so

“Going into the Jackson Hole meetings, the market was pricing in a full 1 ppt of ECB rate hikes by the October meeting and these expectations have only increased since then. However, rate hikes will do little to prop up the EUR vs. the USD given that investors are likely to remain focused on stagflation risks in the Eurozone and given the USD’s haven function.”

“We continue to expect broad-based USD strength to remain in place for a further six months or so.” 

“We maintain our target of EUR/USD 0.95 on a one-month view.”

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GBP/USD remains heavy and on track to test the March 2020 low near 1.1410 

GBP/USD traded at a new low for this move on Monday near 1.1650 but has rebounded to trade just above 1.17. Economists at BBH expect the pair to test the March 2020 low near 1.1410.

The notion of a Truss-led UK government is concerning

“Cable remains heavy and on track to test the March 2020 low near 1.1410.”

“We’ve been pointing out for a while that the notion of a Truss-led UK government is concerning. The main planks of her platform are 1) large-scale tax cuts, 2) BoE mandate review, and 3) hard Brexit. None of these can be seen as positive for sterling and gilts and so along with likely recession in Q4, the reasons to be underweight UK assets are piling up.”

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ECB officials are acknowledging the risks of recession

“We believe EUR/USD remains on track to test the September 2002 low near 0.9615.”

“European Central Bank (ECB) executive board member Fabio Panetta stressed that monetary policy ‘needs to be strictly data dependent, taking fully into consideration the condition of the euro-area economy. This implies first of all being fully aware that the probability of a recession is increasing in the euro area because of the consequences of the pandemic, the shock to commodity prices of recent months, because of the war and its consequences for trade and uncertainty’.”

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EUR/USD: Break below 1.01 open up the July 14 cycle low near 0.9950 – BBH

EUR/USD declines toward 1.0100. A drop under this level would set up a test of the July 14 cycle low near 0.9950, economists at BBH report.

German August ZEW consumer survey was weak

“A break below 1.0110 would set up a test of the July 14 cycle low near 0.9950.”

“Expectations came in at -55.3 vs. -52.7 expected and -53.8 in July, while current situation came in at -47.6 vs. -49.0 expected and -45.8 in July. ZEW noted that ‘The still high inflation rates and the expected additional costs for heating and energy lead to a decrease in profit expectations for the private consumption sector’.”

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EUR/USD finally breaks above 1.0300 to print 5-week highs

EUR/USD surpasses the key 1.0300 level post-US CPI.

Germany Final CPI rose 7.5% YoY in July.

US CPI surprised to the downside at 8.5% in July.

EUR/USD sees its upside gathers further traction and advance to new multi-week peaks past the 1.0300 level on Wednesday.

EUR/USD boosted by USD-weakness

EUR/USD quickly left behind the key hurdle at 1.0300 the figure after US inflation figures tracked by the CPI disappointed expectations. Indeed, consumer prices rose 8.5% in the year to July, while the CPI excluding food and energy costs rose 5.9% from a year earlier, coming in also below initial estimates for a 6.1% YoY gain.

The pair’s sharp upside follows the equally abrupt – although in the opposite direction – decline in the greenback, as investors now perceive that the Federal Reserve might save a 75 bps rate hike for later and raise rates by half point instead at the September gathering.

On the latter, the probability of a 75 bps hike by the Fed in September shrank to around 27% from nearly 70% before the CPI data was published, according to CME Group’s FedWatch Tool.

What to look for around EUR

EUR/USD breaks above the 1.0300 hurdle with certain conviction helped by the intense drop in the dollar in the wake of lower-than-expected US CPI prints for the month of July.

Price action around the European currency, in the meantime, is expected to closely follow dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence.

On the negatives for the single currency emerges the so far increasing speculation of a potential recession in the region, which looks propped up by dwindling sentiment gauges and the incipient slowdown in some fundamentals.

Key events in the euro area this week: Germany Final Inflation Rate (Wednesday) – EMU Industrial Production (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle. Italian elections in late September. Fragmentation risks amidst the ECB’s normalization of monetary conditions. Impact of the war in Ukraine on the region’s growth prospects and inflation.

EUR/USD levels to watch

So far, spot is gaining 1.23% at 1.0340 and faces the next up barrier at 1.0346 (monthly high August 10) seconded by 1.0377 (55-day SMA) and finally 1.0615 (weekly high June 27). On the flip side, a break below 1.0096 (weekly low July 26) would target 1.0000 (psychological level) en route to 0.9952 (2022 low July 14).

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GBP/USD retreats further from multi-week high, slides below 1.2200 amid rebounding USD

GBP/USD slips back below the 1.2200 mark on Tuesday amid a goodish USD rebound.

Recession fears, US-China tensions over Taiwan drive safe-haven flows towards the USD.

Sliding US bond yields might cap the USD and lend support to the pair ahead of the BoE.

The GBP/USD pair witnessed a turnaround from the 1.2275-1.2280 region on Tuesday and retreats further from its highest level since June 27 touched the previous day. The steady intraday descent extends through the early part of the European session and drags spot prices below the 1.2200 mark in the last hour.

The US dollar stages a goodish rebound from a four-week low set earlier this Tuesday, which turns out to be a key factor exerting downward pressure on the GBP/USD pair. The market sentiment remains fragile amid growing worries about a global economic downturn. Apart from this, mounting diplomatic tensions ahead of the planned Taiwan visit by US House Speaker Nancy Pelosi is tempering investors' appetite for riskier assets and benefiting the safe-haven greenback.

The anti-risk flow, along with expectations that the Fed may not hike interest rates as aggressively as estimated, continue to drag the US Treasury bond yields lower. This might hold back the USD bulls from positioning for any meaningful upside. Apart from this, rising bets for a 50 bps rate hike by the Bank of England should continue to lend support to the British pound. The combination of factors could lend support to the GBP/USD pair and limit the downside.

Investors might also prefer to wait on the sidelines ahead of this week's central bank event risk and important US macro data. The BoE is scheduled to announce its monetary policy decision on Thursday, which could play a key role in influencing the near-term sentiment surrounding sterling. Investors will further take cues from the closely-watched US monthly jobs report (NFP) on Friday to determine the next leg of a directional move for the GBP/USD pair.

In the meantime, Tuesday's US economic docket, featuring the only release of JOLTS Job Openings data might provide some impetus later during the early North American session. Apart from this, the US bond yields and the broader risk sentiment would drive the USD demand, allowing traders to grab short-term opportunities around the GBP/USD pair. Nevertheless, it would be prudent to wait for strong follow-through selling before confirming that spot prices have topped out.

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GBP/USD falls towards 1.2000 as USD crawls higher ahead of data

GBP/USD returns to the red as the US dollar sees resurgent demand.

Lack of UK political news and risk-off flows weigh on cable.

The pair recaptures 21 DMA but RSI still remains bearish.

GBP/USD is extending its pullback from three-week highs of 1.2091 in the European session, as risk-off flows dominate amid the worsening European gas crisis and an imminent recession in Germany.

Investors seek refuge in the traditional safe-haven asset, the US dollar, as the buck picks up fresh bids to recapture 106.50 against its major peers. The ongoing sell-off in the US Treasury yields fail to deter the dollar bulls. The greenback also finds demand, as investors turn cautious ahead of the Fed’s expected 75 bps rate hike announcement.

Meanwhile, various factors continue to limit the bullish attempts in the pound. A lack of any encouraging on the UK political front, with candidates Liz Truss and Rishi Sunak battling out the leadership race. Ahead of next week’s BOE rate decision, money markets suggest a bold 50 bps than a conservative 25 bps increase. However, economists are much less certain, with 25 out of 54 polled by Reuters expecting a half-point hike, according to the latest Reuters poll.

Friday’s CFTC data showed IMM speculators reduced their GBP exposure by 10% in the fortnight to July 19, with gross GBP longs cut by 7,675 contracts to 33,850, per Reuters. The pair now awaits the US Durable Goods Orders and New Home Sales data. The main event risk for this week, however, remains the FOMC decision due on Wednesday.

Looking at the cable’s daily chart, the pair closed Monday above the bearish 21-Daily Moving Average (DMA), then at 1.2006.

Although with the 14-day Relative Strength Index (RSI) lurking below the midline, sellers have returned and look to retest the 21 DMA resistance turned support, now at 1.1997.

A sustained break below the latter will expose Monday’s low of 1.1960, below which a test of the 1.1900 level will be inevitable.

On the flip side, if bulls manage to defend the 21 DMA, then a fresh advance towards the descending 50 DMA at 1.2238 cannot be ruled out.

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US Dollar Index looks bid above 107.00 ahead of PMIs

 

• The index posts decent gains beyond the 107.00 mark.
• US yields extend the decline across the curve on Friday.
• Flash Manufacturing/Services PMIs next on tap in the docket.

The greenback, in terms of the US Dollar Index (DXY), leaves behind Thursday’s pullback and regains the area beyond 107.00 the figure at the end of the week.

US Dollar Index now looks to data, FOMC

The index extends the erratic performance so far this week and advances north of the 107.00 yardstick, as market participants seen to have already digested the start of the hiking cycle by the ECB on Thursday.

Contrasting with the upbeat tone in the buck, yields in the US cash markets continue their march south and already navigate in multi-session lows across the curve ahead of the key FOMC event due on July 27.

In the NA session, the advanced Manufacturing and Services PMIs for the month of July will be the only releases of note later in the NA session.

What to look for around USD

The index looks side-lined in the 107.00 neighbourhood amidst a broad-based range bound theme so far this week.

In the meantime, the dollar remains underpinned by the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and the re-emergence of the risk aversion among investors. On the flip side, market chatter of a potential US recession could temporarily undermine the uptrend trajectory of the dollar somewhat.

Key events in the US this week: Flash PMIs (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is up 0.49% at 107.12 and faces next contention at 106.38 (weekly low July 20) followed by 103.67 (weekly low June 27) and finally 103.41 (weekly low June 16). On the other hand, a break above 109.29 (2022 high July 15) would expose 109.77 (monthly high September 2002) and then 110.00 (round level).

When is the European Central Bank (ECB) rate decision and how could it affect EURUSD?

ECB monetary policy decision – Overview

The European Central Bank (ECB) is scheduled to announce its monetary policy decision this Thursday at 12:15 GMT, which will be followed by the post-meeting press conference at 12:45 GMT. The ECB is all but certain to hike its benchmark interest rates for the first time since 2011. Markets, meanwhile, are split on whether the ECB policymakers would stick to the previously telegraphed 25 bps increase or raise rates by 50 bps to curb runaway inflation.

According to Dhwani Mehta, Senior Analyst at FXStreet: “The ECB will deliver a 50 bps lift-off this month, in the wake of rampant inflation, resumption of the Russian gas supply and the fact that the ECB is way behind the curve. It’s also worth noting that front-loading rates now may allow the central bank some room to pause or go slower on rate hikes when a recession hits.”

How could it affect EURUSD?

Given that the ECB has pre-committed to start the rate-hike cycle in July, a 25 bps increase is fully priced into the markets and might do little to provide a meaningful impetus to the shared currency. A bigger move, meanwhile, could trigger a sharp rise in the bond yields for highly indebted countries. The risk, however, could be mitigated if the ECB announces details of its new anti-fragmentation tool. Nevertheless, the event is likely to infuse some volatility around the euro cross and produce some meaningful trading opportunities around the EURUSD pair.

Eren Sengezer, European Session Lead Analyst at FXStreet, outlined important technical levels for the EURUSD pair: “On the downside, 1.0170 (Fibonacci 38.2% retracement of the latest downtrend) aligns as first support ahead of 1.0100 (psychological level, Fibonacci 23.6% retracement, 50-period SMA on the four-hour chart). In case the latter fails, the pair, once again, could test parity. Resistances are located at 1.0200 (psychological level), 1.0220 (Fibonacci 50% retracement, 100-period SMA) and 1.0270 (Fibonacci 61.8% retracement).”

About the ECB interest rate decision

ECB Interest Rate Decision is announced by the European Central Bank. Usually, if the ECB is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the EUR. Likewise, if the ECB has a dovish view on the European economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.

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