Pound Sterling Surges Above 1.3400 Amid US Dollar Weakness Following Soft Inflation Data

Warren Takunda

Economic

Summary:

The Pound Sterling has risen above 1.3400 against the US Dollar as the latter weakens following soft US inflation data.

BUY GBPUSD

EXP

EXPIRED

1.34500

Entry Price

13600.00000

1.33500

1.25383 +0.00207 +0.17%

Pips

EXPIRED

1.33500

1.30580

Exit Price

1.34500

Entry Price

13600.00000

The Pound Sterling (GBP) has risen above the 1.3400 mark against the US Dollar (USD) as the latter experiences a decline following disappointing inflation figures from the United States. This development underscores a slight uptick in the US core PCE inflation rate, suggesting that the Federal Reserve's struggle against inflation is far from over. Market participants are now looking ahead to the speeches of Federal Reserve Chair Jerome Powell and Bank of England (BoE) member Megan Greene for further guidance.

At the beginning of the week, the GBP demonstrated notable strength against its major counterparts. Investors are positioning themselves with the expectation that the Bank of England will implement interest rate cuts at a slower pace and depth than their counterparts in other G7 nations. Many market analysts anticipate that the BoE will enact one final 25 basis point cut during one of the two remaining meetings this year. The focus will be on BoE member Megan Greene's remarks scheduled for 20:10 GMT, as she is an external member of the Monetary Policy Committee (MPC) and recently voted to keep interest rates steady in the last two meetings on September 19 and August 1.

From an economic perspective, the revised estimates for Q2 Gross Domestic Product (GDP) revealed that the UK economy grew by 0.5%, slightly below the preliminary reading of 0.6%. The annual growth rate for Q2 was also revised down to 0.7%, down from the initial estimate of 0.9%.

In Monday's London trading session, the GBP/USD pair surged past the critical resistance level of 1.3400. The US Dollar's decline is reflective of its drop to near yearly lows, with the US Dollar Index (DXY)—which measures the Greenback's performance against six major currencies—falling close to the pivotal support level of 100.20. This weakness in the dollar was exacerbated by data released last Friday, which showed a further slowdown in US inflation for August.

The Personal Consumption Expenditure (PCE) Price Index report indicated that annual inflation rose by only 2.2%, coming in below the forecasted 2.3% and July’s figure of 2.5%. While this deceleration in price growth may provide a sense of relief for Federal Reserve officials, the core PCE price index— which excludes volatile food and energy prices and serves as the Fed's preferred inflation gauge—actually accelerated to 2.7%, up from the previous 2.6%.

Despite the decline in US inflation fuelling expectations for additional interest rate cuts, the data appears insufficient to guarantee another significant 50 basis point cut. The Fed is now more cautious, considering risks to the labor market and the overall economic slowdown. This week, traders will be closely monitoring various US economic indicators, including the ISM Manufacturing and Services PMIs, ADP Employment numbers, Nonfarm Payrolls (NFP) data for September, and JOLTS Job Openings data for August. These reports will provide vital insights into the current health of the job market and the broader economy.

Attention will also be on Jerome Powell's address at 17:00 GMT today, which could offer fresh insights into the Fed’s interest rate strategy. Investors will be looking for indications on whether the Fed is considering a more substantial cut of 50 basis points—similar to the action taken on September 18—or if it will adopt a more cautious approach, favoring smaller 25 basis point reductions.

Technical Analysis

The technical outlook for the GBP/USD pair appears bullish, as recent price action shows new positive trades moving away from the intraday bullish trend line. This trend reinforces expectations of continued upward momentum for the rest of the trading day, setting the stage for a potential ascent toward the next primary target of 1.3600.

It is essential to maintain a position above the support level of 1.3325 to ensure that a downward shift does not materialize. The anticipated trading range for today is between support at 1.3300 and resistance at 1.3470, solidifying the bullish trend forecast for the Pound Sterling against the US Dollar.

TRADE RECOMMENDATION

BUY GBPUSD

ENTRY PRICE: 1.3450

STOP LOSS: 1.3350

TAKE PROFIT: 13600

Risk Warnings and Disclaimers

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Winkelmann

Forex

Summary:

Inflation in the eurozone is weakening rapidly, leading to a significant increase in the possibility of a rate cut, adding pressure to the euro.

SELL EURUSD

Close Time

CLOSED

1.11671

Entry Price

1.10000

1.12300

1.03919 +0.00036 +0.03%

167.1

Pips

Profit

1.10000

1.09989

Exit Price

1.11671

Entry Price

1.12300

Fundamentals

Early this month, the ECB cut interest rates by 25 basis points, restarting the rate-cut cycle that began in June. However, due to the Fed's direct 50-basis-point rate cut, along with its forecast of another 50-basis-point rate cut in November, the US dollar weakened significantly, providing support to the euro and other non-US currencies.

Despite this, there remains a divergence in the market regarding the Fed's potential for a further large rate cut. The US dollar still has some support above the 100 level, limiting its downward potential. Moreover, inflation in the eurozone fell to 2.2% in August, with inflation rates in France and Spain dropping to 1.5% and 1.7%, respectively. These data indicate that inflationary pressures in the eurozone are rapidly weakening, sparking discussions about the ECB possibly continuing to cut rates, which also adds pressure to the euro.

Technical Analysis

Rate Cut Expectations Are Heating Up, Cautious of Possible Short-term Peak_1

In the 4H chart, EURUSD is hovering at highs, but mostly staying under 1.12. With its weak performance, EURUSD is likely to build a top soon. If it drops below 1.10, further bearish signals will be enhanced.

It is recommended to sell at highs. Aggressive investors should sell now or when EURUSD rebounds to 1.12. In the short term, the target should be set at the support of 1.10, and the stop-loss should be above 1.12.

Trading Recommendations

Trading direction: Sell

Entry price: 1.120

Target price: 1.100

Stop loss: 1.123

Support: 1.100/1.112

Resistance: 1.117/1.120

Risk Warnings and Disclaimers

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Manuel

Central Bank

Economic

Summary:

AUDCHF has retraced back to the 0.618 Fibonacci level, which could add downward pressure, as this area is often seen as a strong retracement zone.

SELL AUDCHF

Close Time

CLOSED

0.58050

Entry Price

0.56300

0.58800

0.56843 +0.00363 +0.64%

51.9

Pips

Profit

0.56300

0.57531

Exit Price

0.58050

Entry Price

0.58800

Fundamentals

In its semi annual Financial Stability Review, the RBA cautioned households against accumulating excessive debt in anticipation of lower interest rates. The report highlights the resilience of the financial system despite the challenges posed by high interest rates and persistent inflation.

The RBA also addressed external risks, such as those arising from an increasingly digitalized global economy, financial imbalances in China, and potential abrupt adjustments in global asset prices that could impact Australia’s financial stability.

During its latest meeting, the Reserve Bank of Australia (RBA) opted to keep the cash rate unchanged at 4.35%, in line with market expectations. The central bank emphasized that inflation remains significantly above its target range, stating, "Inflation is still notably above the midpoint of the 2-3% range."

Despite the recent moderation in Australia's Consumer Price Index (CPI) to 2.7%, the likelihood of any short-term rate cuts from the RBA remains low. The economic outlook is clouded by mixed indicators and the central bank’s firm stance on curbing inflation. As a result, market projections have adjusted, now anticipating only a modest 0.25% rate cut in 2024, a shift from earlier forecasts that had expected more substantial easing.

Inflation data released on Wednesday showed a slowdown in the overall inflation rate to 2.7% in August, bringing it within the target range. Core inflation also declined to 3.4%. Market-based swaps now suggest a 72% probability of a rate cut in December.

On September 26, the Swiss National Bank (SNB) reduced its policy rate by 25 basis points, bringing it to 1%, the lowest level since early 2023. This move aligns with similar actions by the European Central Bank (ECB) and the U.S. Federal Reserve, aiming to lower borrowing costs in response to a marked slowdown in inflation. This marks the SNB's third rate cut this year, following a period of sustained inflation within the bank's 0 to 2% target range over the past 15 months.

This decision comes as Thomas Jordan, the SNB Chairman, nears the end of his 12-year tenure. He indicated that further rate cuts might be necessary in the coming quarters to ensure medium-term price stability. The SNB also revised its inflation forecasts for 2025 and 2026 downward, predicting a consumer price growth of just 0.6% in the second quarter of 2027. Possible Selling Pressure at the Retracement Zone and Upper Range Resistance_1

Possible Selling Pressure at the Retracement Zone and Upper Range Resistance_1

Technical Analysis

The AUD/CHF pair recently reached the 200-period moving average, which could serve as a potential resistance level, given that the price has previously reversed from this zone. On this occasion, the pair has retraced back to the 0.618 Fibonacci level, which could add downward pressure, as this area is often seen as a strong retracement zone.

Looking ahead, the AUD/CHF appears to be forming a range near the upper boundary of this resistance area, with the lower boundary of the channel around 0.5612, a level that coincides with similar price action observed in August 2023. This suggests a possible target to the downside.

Meanwhile, ongoing geopolitical tensions in the Middle East, particularly Israel's direct strikes on Hezbollah positions in Beirut, could escalate into a broader conflict, potentially driving the Swiss franc higher. In times of heightened risk, the franc traditionally strengthens as investors seek safe-haven assets, adding upward pressure to the CHF in a risk-off environment.

Trading Recommendations

Trading direction: Short

Entry price: 0.5805

Target price: 0.5630

Stop loss: 0.5880

Validity: Oct 9, 2024 15:00:00

Risk Warnings and Disclaimers

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Manuel

Economic

Forex

Summary:

The GBP/USD pair recently reached the psychological level of 1.3400 and briefly touched 1.3433 during the day, levels not seen since February 2022, representing a two and a half year high.

SELL GBPUSD

Close Time

CLOSED

1.33800

Entry Price

1.32000

1.35000

1.25383 +0.00207 +0.17%

180.0

Pips

Profit

1.32000

Exit Price

1.33800

Entry Price

1.35000

Fundamentals

In the second quarter of 2024, the U.S. economy expanded at an annual rate of 3.0%, in line with initial forecasts. Simultaneously, initial jobless claims fell to 218,000 for the week ending September 21, coming in below market expectations and signaling a resilient labor market.

The U.S. Personal Consumption Expenditures (PCE) index for August registered a year-over-year increase of 2.2%, down from 2.5% in the previous month and slightly below consensus estimates. Core PCE, which excludes food and energy prices, rose modestly from 2.6% to 2.7% year-over-year for the same period, as anticipated. Meanwhile, the University of Michigan's Consumer Sentiment Index for September improved from 69.0 to 70.1. Inflation expectations for the next year declined from 2.8% to 2.7%, whereas the five-year outlook edged up from 3.0% to 3.1%.

Last week, the Federal Reserve implemented its first rate cut since March 2022, reducing the benchmark interest rate by 50 basis points. This move follows eleven consecutive rate hikes as the Fed strives to balance fostering economic growth with controlling inflation. The central bank expressed growing optimism that inflation is approaching its 2% target and described the risks to its dual mandate of maximum employment and price stability as "roughly balanced." However, the Fed acknowledged ongoing uncertainty in the economic outlook.

Market expectations now include an additional 75 basis points in rate cuts by the end of the year and a cumulative reduction of 175-200 basis points over the next 12 months. With upcoming releases of GDP and PCE data, investors will closely monitor the Fed's policy direction for further clues.

Across the Atlantic, Bank of England (BoE) Governor Andrew Bailey highlighted the importance of a cautious approach to monetary policy, warning that the central bank must "avoid cutting rates too rapidly or excessively." This caution comes amid persistently high inflation in the U.K., which remains above the BoE's 2% target.

Financial markets are pricing in at least one more rate cut from the BoE later this year, likely during one of its two remaining monetary policy meetings. The elevated inflation rate within the U.K.’s services sector is a significant factor influencing this cautious stance on interest rates. In August, annual services inflation—a key indicator closely watched by the BoE—rose to 5.6%, up from 5.2% in July. During the European trading session on Tuesday, Bailey's comments suggested that the BoE’s easing cycle will proceed gradually.

From an economic perspective, the preliminary S&P Global/CIPS U.K. Purchasing Managers' Index (PMI) for September indicated a slight decline but remained above the critical 50.0 threshold that separates expansion from contraction. The report revealed that overall private business activity fell to 52.9, down from 53.8 in August, due to a sharper-than-expected slowdown in both the manufacturing and services sectors. Short Opportunities as Geopolitical Risks Emerge_1

Short Opportunities as Geopolitical Risks Emerge_1

Technical Analysis

The GBP/USD pair recently reached the psychological level of 1.3400 and briefly touched 1.3433 during the day, levels not seen since February 2022, representing a two-and-a-half-year high. This surge may prompt traders to take profits from positions established at lower levels. The 100- and 200-period moving averages are currently positioned between 1.3150 and 1.3200, aligning closely with the ascending trendline of the bullish channel.

As observed in the chart, short positions can be considered from the upper boundary of the ascending channel, targeting the lower end of the channel where the moving averages converge.

Additionally, ongoing geopolitical developments in the Middle East, including Israel's direct attacks on Hezbollah in Beirut, could escalate into a broader conflict, potentially driving the U.S. dollar higher. In a risk-off environment, the dollar typically strengthens as investors seek safe-haven assets.

Trading Recommendations

Trading direction: Short

Entry price: 1.3380

Target price: 1.3200

Stop loss:1.3500

Validity: Oct 4, 2024 15:00:00

Risk Warnings and Disclaimers

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Alan

Central Bank

Forex

Summary:

The rising expectations of Fed rate cuts have put pressure on the US dollar, while Canada's economy shows signs of a soft landing, which supports a potentially stronger Canadian dollar. The technical outlook for USDCAD remains bearish, with rebounds presenting opportunities to short the pair.

SELL USDCAD

Close Time

CLOSED

1.34777

Entry Price

1.32400

1.35100

1.43302 -0.00005 0.00%

32.3

Pips

Loss

1.32400

1.35100

Exit Price

1.34777

Entry Price

1.35100

Fundamentals

On September 18, the Federal Reserve announced a 50 basis point rate cut, signaling the beginning of a rate-cutting cycle. Market expectations for further rate cuts by the Fed have since intensified.

Former Fed Chair Ben Bernanke noted that the unemployment rate may not be sustainable and could rise if the US economy slows down, necessitating further action from the Fed. He anticipates an additional 50-75 basis points of cuts this year, with the possibility of a 50 basis point cut at one of the remaining meetings. Additionally, Bernanke expects the Fed to cut rates by another 100 basis points next year.

In contrast, on September 17, Statistics Canada reported that the Consumer Price Index (CPI) rose by 2.0% year-over-year in August, the lowest inflation rate since February 2021 and the first time in three and a half years that inflation has met the Bank of Canada's target. This marks a significant achievement for Canada in controlling inflation, bringing it back to the Bank's target range, and indicates a soft landing for the economy.

Overall, with the Fed beginning its rate-cutting cycle and the Canadian economy showing stability, the US dollar is likely to remain under pressure, while the Canadian dollar is expected to strengthen. Therefore, USDCAD is expected to continue its downward trend.

Technical Analysis

Rebounds Present Selling Opportunities_1

Looking at the daily chart, USDCAD broke out of its uptrend channel, which lasted from late last year to August of this year, and has since been in a downtrend. After initially falling to the support level at 1.3440, the pair rebounded but faced strong resistance near 1.3600, leading to another decline and a fresh low this past Wednesday.

The overall structure shows that the pair is forming lower highs and lower lows to further indicate strong bearish momentum. The downside channel has been established after setting a new low on September 25.

The first target to watch for the downtrend is the key support level at 1.3160. A decisive break below this level would likely shift the short-term downtrend into a longer-term one.

It is recommended to focus on selling opportunities during rebounds.

Trading Recommendations

Trading Direction: Sell

Entry Price: 1.3480

Target Price: 1.3240

Stop Loss: 1.3510

Valid Until: Oct 11, 2024 15:00:00

Support: 1.3459, 1.3419, 1.3357

Resistance: 1.3493, 1.3535, 1.3567

Risk Warnings and Disclaimers

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Alan

Central Bank

Commodity

Summary:

The fundamentals for silver remain highly supportive to drive prices upward. The bullish trend persists, and pullbacks are seen as opportunities to buy.

BUY XAGUSD

Close Time

CLOSED

31.798

Entry Price

35.000

31.200

30.287 +0.360 +1.20%

59.8

Pips

Loss

31.200

31.196

Exit Price

31.798

Entry Price

35.000

Fundamentals

US economic data has been disappointing recently, with the consumer price index (CPI) recording its largest drop in three years and manufacturing data falling short of expectations. This has increased market expectations for the Fed to cut rates before the year ends.

According to swap traders' predictions, the Fed could cut rates by a total of 75 basis points across its remaining two meetings this year, with a significant possibility of a 50-basis-point cut. Silver prices may continue to climb as expectations of Fed rate cuts grow.

In addition, China has recently introduced a series of unexpectedly favorable policies aimed at boosting economic growth, which is likely to increase demand for industrial silver and further support silver prices.

The escalating tensions in the Middle East, particularly the ongoing conflict between Israel and Hezbollah, are adding to market uncertainty and increasing investor demand for safe-haven assets like silver. As a result, silver could see additional upward momentum driven by increased demand during times of uncertainty.

Technical Analysis

Pullbacks Present Buying Opportunities_1

On Thursday, silver prices broke through previous highs, reaching $32.70 to open up further upside potential. However, some profit-taking caused a temporary pullback, which resulted in prices hovering around $32.00.

From a technical standpoint, silver's breakout above the May 20 high to a new peak has confirmed the bullish momentum. The next target for bulls is to test the 2012 high of $37.48. Nonetheless, this upside potential is contingent on the current pullback not dropping below the key support level of $31.40. A break below this level could invalidate the potential to reach higher levels and lead to a deeper correction.

Overall, the fundamentals continue to support silver's upward trend. Any pullback that stabilizes offers an opportunity to enter long positions.

It is recommended to buy after the pullback confirms a stable support level.

Trading Recommendations

Trading Direction: Buy

Entry Price: 31.80

Target Price: 35.00

Stop Loss: 31.20

Valid Until: Oct 11, 2024 15:00:00

Support: 31.40, 30.34, 30.13

Resistance: 32.20, 32.70, 35.36

Risk Warnings and Disclaimers

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Eva Chen

Forex

Central Bank

Summary:

Despite the recent 50-basis point rate cut by the Fed narrowing the interest rate gap, the spread still favors the US dollar. Additionally, concerns over the Eurozone's economic outlook continue to weigh on the euro, acting as key obstacles for its upward momentum.

SELL EURUSD

Close Time

CLOSED

1.11949

Entry Price

1.08500

1.12800

1.03919 +0.00036 +0.03%

122.2

Pips

Profit

1.08500

1.10727

Exit Price

1.11949

Entry Price

1.12800

Fundamentals

The likelihood of the European Central Bank (ECB) cutting rates again at next month's meeting is increasing. According to seven sources, the ECB's dovish policymakers are preparing to push for another rate cut next month following a series of weaker-than-expected economic data.

ECB policymakers had previously indicated that the chances of a rate cut on October 17 were low after this month's borrowing cost reduction. However, disappointing surveys of Eurozone businesses, poor German consumer confidence data, and wage growth slowing more than anticipated have emboldened those advocating for a rate cut.

Next week's Eurozone inflation data may come in below the ECB's 2% target. While this might not immediately trigger another rate cut, the odds of such a move are now higher than before.

This week, EURUSD has remained stable, trading around 1.1170, despite earlier US dollar strength. The dollar surged earlier in the week as the market awaited insights from key Fed policymakers, but no significant data emerged to impact its trajectory. Instead, subtle market expectations for the Fed's future rate actions appeared to influence the dollar.

Fed Governor Adriana Kugler voiced support for the recent 50-basis point rate cut, though he refrained from committing to a specific direction for future policy. Meanwhile, Atlanta Fed President Raphael Bostic warned against cutting rates prematurely, indicating that the Fed still has ample time before making further adjustments.

These mixed signals from Fed officials highlight a lack of consensus among fiscal policymakers and reflect the complexities of the current economic situation as well. If the ECB cuts rates again next month while the Fed remains in a wait-and-see stance, the widening yield spread and structural bottoming of the dollar could drive a significant recovery.

Widening Yield Spread and Structural Bottoming to Drive Significant Dollar Rebound Next Month_1

Technical Analysis

EURUSD has continued to consolidate above its 14-month high, well above the 20-day SMA. A successful break of Wednesday's high at 1.1213 would resume the upward momentum. However, we believe this current rally from the bottom at 1.0665 is nearing its peak, as momentum wanes and the 14-month resistance may prove insurmountable for bulls.

From a technical perspective, while the %K line crosses above the %D line in the stochastic oscillator, the RSI remains neutral, and the MACD shows little increase in momentum. If the market pushes higher, the MACD may hold back further upward divergence. Thus, it is expected that the current rally will reach its peak soon, followed by a pullback before finding mid-term support for another upward push.

Trading Recommendations

Trading Direction: Sell

Entry Price: 1.1190

Target Price: 1.0850

Stop Loss: 1.1280

Valid Until: Oct 12, 2024 23:55:00

Support: 1.1119, 1.1069, 1.1003

Resistance: 1.1189, 1.1213, 1.1249

Risk Warnings and Disclaimers

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Pound Sterling Surges Above 1.3400 Amid US Dollar Weakness Following Soft Inflation Data

Rate Cut Expectations Are Heating Up, Cautious of Possible Short-term Peak

Fundamentals

Technical Analysis

Trading Recommendations

Possible Selling Pressure at the Retracement Zone and Upper Range Resistance

Fundamentals

Technical Analysis

Short Opportunities as Geopolitical Risks Emerge

Fundamentals

Technical Analysis

Rebounds Present Selling Opportunities

Fundamentals

Technical Analysis

Trading Recommendations

Pullbacks Present Buying Opportunities

Fundamentals

Technical Analysis

Trading Recommendations

Widening Yield Spread and Structural Bottoming to Drive Significant Dollar Rebound Next Month

Fundamentals

Technical Analysis

Trading Recommendations

Risk Disclosure