. Daily FX Analysis - UK Inflation Dips to 6.7%, Pound Hits 4-Month Low

Daily FX Analysis – UK Inflation Dips to 6.7%, Pound Hits 4-Month Low

Daily FX Analysis – UK Inflation Dips to 6.7%, Pound Hits 4-Month Low

20 Sep 2023

Introduction:

In the wake of UK inflation data, GBP/USD has plummeted to multi-month lows, dipping below 1.2350, driven by a surprising drop in annual CPI inflation to 6.7%. Despite a minor dip in the US Dollar, GBP/USD struggled to regain traction. Meanwhile, the looming BoE meeting adds to investor caution as they await potential rate hikes. In the world of forex, EUR/USD maintains a cautious stance below 1.0700 ahead of the pivotal FOMC decision. Similarly, AUD/USD hovers around 0.6450 following PBOC’s inaction, with all eyes on the Federal Reserve’s monetary policy meeting. Finally, USD/JPY remains range-bound below 148.00 as traders await the Fed’s decision and monitor the BoJ’s policy meeting.

GBP/USD:

Following UK inflation statistics, GBP/USD reached multi-month lows around 1.2350.

GBP/USD experienced fresh bearish pressure and fell below 1.2350 to reach its lowest point in almost four months. Data from the UK revealed that annual CPI inflation fell to 6.7% from analysts’ expectations of 7.1%, which had a significant impact on the value of the pound sterling.

The small US Dollar (USD) decline experienced on Monday during the American session did not help GBP/USD, which ended the day with little move. After a brief attempt at a comeback toward 1.2400 early on Tuesday, the pair lost momentum and approached the multi-month low it recorded at 1.2730.

According to ING economists, it is not surprising that investors are continuing to be “broadly defensive” in front of this week’s significant events. Their prediction for the BoE meeting was that “our base case remains a rate hike, although the upside for Sterling would entirely depend on whether the BoE will convince markets they can do more,” they added.

Technical Overview :

Moving Averages:

Exponential:

  • MA 5: 1.2381 | Negative Crossover | Bearish
  • MA 20: 1.2423| Negative Crossover | Bearish
  • MA 50: 1.2501 | Negative Crossover | Bearish

Simple:

  • MA 5: 1.2384 | Negative Crossover | Bearish
  • MA 20: 1.2427 | Negative Crossover | Bearish
  • MA 50: 1.2552 | Negative Crossover | Bearish

RSI (Relative Strength Index): 33.73 | Sell Zone | Negative

Stochastic Oscillator: 36.62| Sell Zone | Negative

Resistance And Support Levels: 

  • R1: 1.2442 | R2: 1.2535
  • S1: 1.2357 | S2: 1.2264

Overall Sentiment: Bearish | Market Direction: Sell

Trade Suggestion: Stop Sell: 1.2326 | Take Profit: 1.2264 | Stop Loss: 1.2372

EUR/USD:

As traders eagerly anticipate the FOMC, EUR/USD trades with a slight bullish bias but remains below 1.0700.

On Wednesday, EUR/USD saw a modest dip in buying, but bullish confidence is lacking. Bets that the ECB would stop raising interest rates serve as a drag on the Euro and limit gains. The FOMC decision is now being looked to by traders, who also appear hesitant. On Tuesday, the EUR/USD slightly fell after failing to hold gains over 1.0700. The pair reached its highest point since last Thursday at 1.0717. In the afternoon, the US dollar gained strength as market mood declined and US rates increased in anticipation of the Federal Reserve’s (Fed) announcement.

The outcome of the FOMC meeting could determine the course of the US dollar and will probably have a big effect on the market. The US Dollar Index (DXY) gain halted on Monday, although there have been no big corrections, and the tendency is still upward. Prior to the judgment, market participants will probably stay on the sidelines.

Technical Overview:

Moving Averages:

Exponential:

  • MA 5: 1.0684| Positive Crossover | Bullish
  • MA 20: 1.0694 | Negative Crossover | Bearish
  • MA 50: 1.0741 | Negative Crossover | Bearish

Simple:

  • MA 5: 1.0685 | Positive Crossover | Bullish
  • MA 20: 1.0694 | Negative Crossover | Bearish
  • MA 50: 1.0749 | Negative Crossover | Bearish

RSI (Relative Strength Index): 47.85| Positive Zone | Bullish

Stochastic Oscillator: 79.01 | Buy Zone | Neutral

Resistance And Support Levels: 

  • R1: 1.0718| R2: 1.0778
  • S1: 1.0668 | S2: 1.0576

Overall Sentiment: Bearish | Market Direction: Sell

Trade Suggestion: Stop Sell 1.0632| Take Profit: 1.0576 | Stop Loss: 1.0677

AUD/USD:

AUD/USD remains lower near 0.6450 following PBOC’s status quo and the Fed’s eye.

After losing the recovery in the Wednesday Asian session, the AUD/USD is maintaining lower ground near 6450. The PBOC’s inaction weighs heavily on the Aussie. Market participants are waiting for a new trade jolt from the highly anticipated Federal Reserve monetary policy meeting.

Despite a decline in market sentiment, the AUD/USD increased, but the gains were modest, and the pair was unable to decisively breach over 0.6470. Although there is an upward bias, certainty is absent.

On Wednesday, the Federal Reserve (Fed) will make its decision public. The FOMC is likely to maintain the prospect of additional rate hikes if necessary, and no change is anticipated. Macroeconomic forecasts, the statement, and Chair Powell’s remarks will all be heavily scrutinized. Powell’s approach will be required because the war against inflation is still ongoing.

Technical Overview:

Moving Averages:

Exponential:

  • MA 5: 0.6453 | Positive Crossover | Bearish
  • MA 20: 0.6439 | Positive Crossover | Bullish
  • MA 50: 0.6439 | Positive Crossover | Bullish

Simple:

  • MA 5: 0.6454 | Positive Crossover | Bullish
  • MA 20: 0.6437 | Positive Crossover | Bullish
  • MA 50: 0.6434 | Positive Crossover | Bullish

RSI (Relative Strength Index): 57.05 | Buying Zone | Bullish

Stochastic Oscillator: 46.09| Buy Zone | Neutral

Resistance And Support Levels: 

  • R1: 0.6473 | R2: 0.6573
  • S1: 0.6412 | S2: 0.6352


Overall Sentiment: Bullish | Market Direction: Buy

Trade Suggestion: Stop Buy: 0.6499 | Take Profit: 0.6573 | Stop Loss: 0.6454

USD/JPY:

Ahead of the Fed decision, USD/JPY maintains its range below 148.00.

During Wednesday’s Asian session, USD/JPY is restricted to a range below 148.00. The senior Japanese FX diplomat Kanda’s verbal intervention went unanswered by the pair. In advance of the important Fed interest rate announcement, traders choose to stay out of the market.

The Federal Reserve (Fed) is expected to keep things as they are when it makes its announcement on Wednesday. However, market participants appear to be certain that the US central bank would maintain its hawkish attitude and keep rates higher for a longer period. The prognosis is still favorable for high US Treasury bond rates, which helps the US Dollar (USD) avoid falling sharply from a six-month high and supports the USD/JPY pair.

Therefore, the BoJ policy meeting on Friday will also be in the limelight. Investors will be watching for any indication of a future change in the Japanese central bank’s negative interest rate policy.

Technical Overview:

Moving Averages:

Exponential:

  • MA 5: 147.86 | Positive Crossover | Bullish
  • MA 20: 147.55 | Positive Crossover | Bullish
  • MA 50: 146.95 | Positive Crossover | Bullish

Simple:

  • MA 5: 147.84 | Positive Crossover | Bullish
  • MA 20: 147.51 | Positive Crossover | Bullish
  • MA 50: 149.96 | Positive Crossover | Bullish

RSI (Relative Strength Index): 62.89 | Buy Zone | Bullish

Stochastic Oscillator: 80.04| Buy | Positive

Resistance And Support Levels: 

  • R1: 148.40 | R2: 151.93
  • S1: 147.28 | S2: 145.90


Overall Sentiment: Bullish | Market Direction: Buy

Trade Suggestion: Stop Buy: 149.52 | Take Profit: 151.93 | Stop Loss: 148.14

Elsewhere in the Forex Market

NZD/USD up 0.02% to 0.5935. The EUR/JPY up 0.01% to 158.08. The USDCHF is up 0.08% at 0.8983. USD/CAD up 0.04% at 1.3453, EUR/GBP up 0.04% at 0.8651. The USD/CNY is up 0.03% at 7.2990, and AUD/SEK is up 0.02% at 7.2078, at the time of writing.

Key Economic Events & Data Release Today:

(CNY) PBoC Loan Prime Rate Actual 3.45%, Forecast 3.45%, Previous 3.45% at 06:45.

(GBP) CPI (YoY) (Aug) Actual 6.7%, Forecast 7.0%, Previous 6.8% at 11:30.

(USD) Fed Interest Rate Decision Forecast 5.50%, Previous 5.50% at 23:30.

(USD) FOMC Economic Projections at 23:30.

(USD) FOMC Statement at 23:30

(USD) Crude Oil Inventories Forecast –2.200M, Previous 3.954M at 20:00.