Forex Trading Library

The Week Ahead – Patching cracks

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GBPUSD rallies as BoE may stay hawkish

Chart of GBPUSD

The pound inches higher as the BoE is expected to stay the course in its monetary tightening. With the UK’s inflation rate still at double digit, the highest among major economies, a quarter-percentage rate increase to 4.5% seems to be a done deal. Policymakers are expected to emphasise patience in order to ‘see the job through’. Looking forward, persistent enough inflationary pressures could bring borrowing costs to 5% by this summer. As the US Fed is likely to shift to a lower gear, the relative rates outlook may provide tailwinds to Sterling in the medium-term. The bulls are pushing towards 1.2900 and 1.2300 is the closest support.

XAUUSD jumps on safe haven demand

Chart of XAUUSD

Bullion advances to an all-time high as investors worry that a recession trigger is in the making. The First Republic Bank drama has barely settled and market participants are already on the lookout for the next victim. PacWest and Western Alliance are the latest names popping up as ailing regional lenders struggle to stay afloat. If this fits the narrative of the beginning of the end, then the safe haven metal would continue to shine. Meanwhile, the end of the tightening would reduce the relative opportunity cost of the non-yielding asset and further boost demand for gold. The price is hovering under 2100 with 1950 as the closest support.

UKOIL slips over economic uncertainty

Chart of UKOIL

Oil prices remain under pressure on fears of weakening global demand. Against the backdrop of a cautious market mood, investors have been trimming their exposure to risk assets. Strong headwinds from the US and China also leave little appetite for the growth-sensitive commodity. Unless the sparks in the struggling US regional banking sector are put out for good, optimism is unlikely to return as the last thing the market wants to see is it turning into a wildfire. Meanwhile, Chinese factory activity showed a contraction in April, a double whammy for the price action which is testing 70.00 with 87.50 as a strong resistance.

NAS 100 holds as investors turn wary

Chart of US100

The Nasdaq 100 slows down as the market rethinks growth prospects. The Fed’s hint at pausing interest rate hikes was met with little enthusiasm as the end of the tunnel may not look as rosy as one would have hoped a few months ago. Investors are increasingly concerned about the full impact of the most aggressive policy tightening since the 1980s on growth in the next few months. Cracks have become visible as the stress in the banking sector keeps resurfacing. The crisis could become self-fulfilling with broader repercussions on the US and the global economy. Last August’s high of 13700 is the next hurdle and 12500 a key support.


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