The British pound has regained bullish momentum after the release of UK inflation data. The CPI data showed the UK inflation rate dropped to the lowest level the country has seen since February 2022, driven by a significant decrease in food and energy prices. The Office for National Statistics (ONS) said Consumer Prices Index inflation was 6.8% in July, down from 7.9% in June. Meanwhile, the Core CPI remained stubbornly high at 6.9% in July, holding steady from the previous month. The GBP bounced as investors expect the Bank of England to continue tightening policy to bring down inflation as consumer price growth could take years to fall back to 2%.
So far today the British pound held firm against many other rivals, including the Dollar, euro and commodity-linked currencies. GBPUSD trades above 1.2750 now. Although the medium-term trend is mixed, in the short term it seems that evidence is starting to emerge that a short-term recovery of the pair. On the upper side, the next resistance is located around 1.2780, a break above this level will confirm a possible move to 1.2830/40 in the short-term. On the downside, key double-bottom support seems to have formed in the 1.2610 area. A daily close below that area could be seen as a strong bearish shift and open the floor to an extended slide toward 1.2540.
Wall Street ended lower on Tuesday after a strong US retail print bolstered the case for further rate hikes. The bearish sentiment was also fueled by hawkish comments from Fed President Kashkari. The Fed's Kashkari said that the U.S. inflation is now falling, and the Fed has made some good progress, but inflation is still too high. He also said Tuesday that he is not ready to declare victory in the battle over high inflation.
Crude oil futures slightly recovered from the early losses. However, the overall momentum remained bearish throughout the Asian session despite the API reports larger than expected drop in US Crude Oil inventories. The API data showed the US crude inventories fell by 6.195 million barrels in the week that ended August 11th, 2023, after a 4.067 million barrels increase in the previous week.
In the currency market, the Japanese Yen remains the weakest currency pair of this week while the New Zealand dollar rebounded from recent lows against other major currencies in the Asian session on Wednesday after the RBNZ decision. Euro trades flat against the US dollar while the currency pair continued to move upward against trade-sensitive and ‘risk on’ currencies like the Aussie dollar and New Zealand dollar. On the other hand, the king dollar lost the upside momentum ahead of the publication of the Fed's minutes of its July meeting.
The precious metal struggling to regain momentum. The metal broke below the key level support area of $1900 on Tuesday following the release of stronger-than-expected US retail sales data. US Headline retail sales rose by 0.7% in July, accelerating from 0.3% and above expectations of 0.4%. As of this writing, the metal remains unchanged as the traders and investors are waiting for the release of the July FOMC meeting minutes.
On the data front, the Reserve Bank of New Zealand (RBNZ) kept interest rates steady on Wednesday and said that interest rates will need to remain high or potentially rise further due to a sticky inflation outlook for the country. The RBNZ kept its official cash rate at 5.50% as expected, keeping rates steady for a second consecutive month.
Moving ahead today, the important events to watch:
US – Housing and building permits: GMT – 12:30
US – FOMC minutes: GMT – 18:00
Technical Outlook and Review
EURUSD: The 4-hour chart shows that the price is still in the midst of a recovery from the recent drop and broader market sentiment will play a key role in this recovery. So, there is a high likelihood that we might see the pair trading above the 1.1000 price level again this week. On the downside, the 1.0870 area of confluence has recently been held as a firm support, failure to defend the mentioned support levels has the potential to drag the pair further towards the 1.0840/30 support zone.
The important levels to watch for today: Support- 1.0900 and 1.0870 Resistance- 1.0970 and 1.1000.
GOLD: Technically, gold prices are near the key support area. The next movement will depend on whether we have a confirmed retracement or the breakout of the support. On the upper side, the metal needs to break and close above $1930 to have a chance to develop upside momentum in the medium term.
The important levels to watch for today: Support- 1896 and 1890 Resistance- 1914 and 1920.
Quote of the day – “If you make a good trade, don’t think it’s because you have some uncanny foresight. Always maintain your sense of confidence but keep it in check.” — Paul Tudor Jones.