Forex Trading Library

The Week Ahead – Geopolitics matters

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GBPUSD awaits inflation data

Chart of GBPUSD

The pound steadies as traders look for clues in July’s inflation data. Both job and retail data may stir up volatility but the CPI is likely to be a major market mover. The market has scaled back their interest rate expectations after the UK’s inflation fell more than expected in June. Another lower reading this week may confirm the downtrend in consumer price growth and offer the BoE much relief. Then how much the market believes in the soundness of the UK economy and the dollar’s ebb and flow would drive the price action rather than the rate differential across the Pond. 1.2600 is a fresh support and 1.3000 the first resistance.

NZDUSD weakens as China’s data disappoint

Chart of NZDUSD

The New Zealand dollar drifts lower as global risk appetite takes a back seat. Domestic-wise, price pressures are easing even though only gradually. The latest RBNZ survey showed two-year inflation expectations within the central bank’s target band of 1% to 3%, prompting traders to widely expect a rather uneventful policy meeting this week. Global macro is more likely to drive the exchange rate. As a proxy for Chinese growth, the kiwi may come under pressure as the second economy slipped into deflation in July, putting a dent to risk sentiment. The pair is testing the critical support of 0.6000 and 0.6230 is the first resistance.

XAUUSD consolidates as dollar softens

Chart of XAUUSD

Gold may bounce back thanks to a weaker US dollar. Despite a timid upswing in the CPI the disinflation narrative seems to be taking root. Most market participants expect no rate hike at the Fed’s next policy meeting in September. The latest meeting minutes may offer clues on where policymakers stand, especially whether the hawks are still carrying weight. If not, softness in the US dollar and Treasuries would boost the appeal of non-yielding bullion. And for those tuned in to uncertain geopolitical games, the safe haven metal could see growing demand. 1900 is a major support and 1985 the hurdle to clear to trigger a recovery.

SPX 500 retreats as trade tensions compound inflation

Chart of US500

The S&P 500 falls back as investors take profit amid stubborn US inflation. The recent uptick in price growth, though mild, could suggest that core inflation remains sticky. As investors temper their expectations of the end of the Fed’s monetary tightening and the start of rate cutting early next year, they may use the pullback as an opportunity to take profits after five months of rally. Meanwhile, trade worries might keep the market on its toes as the Biden administration went down the road of escalation by restricting investment in China in sensitive technologies. The index is hovering above 4380 with 4640 as resistance ahead.

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