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Forex Market Wrap Analysis
U.S. Consumer Price Index (CPI) data revealed a slight cooling off in inflationary pressures, with the year-on-year (y/y) figure easing from 5% to 4.9%. While this marginal deceleration might seem insignificant, it’s an important indicator of the trajectory of the American economy. Investors worldwide scrutinize this indicator as it offers valuable insights into inflation trends, a primary focus given the recent inflation scare. However, the market response has been measured, reflecting an understanding that this drop is not enough to significantly shift the Federal Reserve’s monetary policy.
In labour market news, US Unemployment Claims rose from 242k to 264k. While traditionally a surge in unemployment claims is perceived negatively, given the current circumstances, this increase has provided some relief to the markets. This is because a weaker labour market might support the widely held market expectation of a pause from the Federal Reserve in their next meeting. The market has been speculating a pause in their tapering or rate hike plans, and this data fuels that belief.
Now, let’s hop across the pond to the United Kingdom, where the Bank of England (BoE) hiked interest rates from 4.25% to 4.50%. This move reflects the BoE’s assertive stance on taming inflation, which remains stubbornly high. What’s more, the UK central bank didn’t stop at that; they’ve signalled a willingness to continue raising rates if required. This hawkish stance is a significant development and could potentially strengthen the GBP in the long run, as higher interest rates typically attract foreign investment, boosting the demand for the currency.
However, the UK’s growth outlook hit a snag as the month-on-month (m/m) Gross Domestic Product (GDP) fell from 0.00% to -0.30%. This setback, an indicator of a slowing economy, has put the brakes on a strong GBP. It creates a delicate balance for traders to weigh between the hawkish interest rate path and the potential economic slowdown.
USD Index
The price on the chart has traded through multiple technical levels and some observations included:
- The USD Index has traded through the resistance range highs of 102.00.
- If the price remains above this level, the USD strength could return to the market.
- This could see the USD Index trade higher towards the resistance level of 103.25.
GBPUSD
The price on the chart has traded through multiple technical levels and some observations included:
- GBPUSD found resistance at the key weekly level of 1.2650.
- Despite the hawkish comments from the Bank of England, GBP fell against the USD.
- Price is now trading towards the supporting lows at 1.2350.
USDJPY
The price on the chart has traded through multiple technical levels and some observations included:
- The USDJPY price has had a mixed week, price fell earlier in the week as JPY strength returned. Towards the end of the week, the USD strength entered the market causing prices to rally.
- Price has found support near 133.50, and looks to be trading higher towards the 137.00 highs.
GOLD
The price on the chart has traded through multiple technical levels and some observations included:
- The price of Gold remains within a bullish channel below the $2075.00.
- If the USD continues to get stronger, the price could break through the bullish channel lows, and target support of $1950.00.
Have you watched our interview with GBPUSD analysis? You can see it here.
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