ANALYSIS OF THE POUND STERLING AND CONVERSION POINTS
UK CPI hits 30-year high. The drop in core inflation lowered the top rate figure. Pound down more than 0.5% in GBP/USD and EUR/GBP.
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FUNDAMENTAL CONTEXT GBPUSD and EUR/GBP
The British pound fell after the UK CPI report (see economic calendar below) missed both headline and core inflation, respectively, from 30-year highs. The key focus was the impression of core inflation (6.9%) which could indicate a possible peak in the inflation cycle and the impact of the aggressive monetary policy adopted by the Bank of England (BoE). A welcome sign for many UK consumers is the reduction in PPI data, which could signal further easing of inflationary pressures to come.
Breaking down the inflation basket, several items remain sticky, including alcohol and tobacco, clothing and footwear, housing and household services, of which homeowners’ housing costs and communication , which increased year-on-year. The drop in transport and fuels was probably the most prominent, with fuel prices falling 22.7% in 2023 (through June) and the transport segment falling 1.7% from ‘1.3% from May 2023.
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UK ECONOMIC CALENDAR (GMT +02:00)
Source: DailyFX Economic Calendar
Looking at BoE interest rate expectations below, there is a bias towards aa 50 bps rate hike in August approximately 58% but the maximum rate has decreased since then 6.15% even marginally above 6%. With no more significant UK economic data ahead of the BoE rat announcement, the main GBP crossovers are likely to be driven by both US and Eurozone factors. Later today, EZ CPI is scheduled alongside US building permits and BoE Ramsden data.
BANK OF ENGLAND INTEREST RATE PROBABILITY
Source: Refinitiv
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TECHNICAL ANALYSIS
GBP/USD DAILY CHART
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The price action on the daily wire chart above shows the immediate selling of the pound against the greenback now below the 1.3000 psychological handling, extending its movement out of the overbought zone on the relative strength index (RSI).
Key resistance levels:
Key levels of support:
1.29001.2848 Trend line support 1.2680
IG CLIENT SENTIMENT BASSIST (GBP/USD)
IG Customer Sentiment (IGCS) data shows that retail traders are currently net SHORT in GBP/USD with 67% of traders holding short positions (as of this writing). At DailyFX we normally take a contrary view to the crowd sentiment, but due to recent changes in long and short positioning, we come to a short-term bearish bias.
EUR/GBP DAILY CHART
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EUR/GBP recovered after the release and is now trading above the June high 0.8658. Although the RSI is approaching the overbought region, there is still room for further upside possibly around the 0.8700 – 0.8750 resistance zone.
Key resistance levels:
Key levels of support:
BULLISH IG CLIENT SENTIMENT (EUR/GBP)
IG Customer Sentiment (IGCS) data shows that retail traders are currently net LONG in GBP/USD with 62% of traders holding long positions (as of this writing). At DailyFX we normally take a contrary view to crowd sentiment, but due to recent changes in long and short positioning, we come to a short-term bullish bias.
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