Contrary signals keep GBPUSD stuck below $1.38
Apart from the constant and contrary news we see about covid-19 in the UK, the data is just as ambiguous. The HIS composite purchasing managers index slipped in July as reports came in of staff shortages due to the covid alert system. However, sales related to football matches rose, so perhaps those absent staff were doing something other than isolating. Also, consumer confidence in the UK, according to Gfk’s index, improved in July. So we can’t be surprised that GBP traders are a bit directionless right now.
Technically speaking, having dropped below a support line that extends back to January, the GBPUSD rate is now at a crossroads. If it closes this week above $1.38, then the drop we saw last week to $1.3620 can be considered a blip. However, if this pair tries but fails to break above $1.38, for chartists, it will confirm the break and we could well be heading for $1.34 to complete the head and shoulders pattern we can see in the chart between April and June.
The story with the USDEUR exchange rate is similar but the Pound has stayed above the support level which started back in February. That trend line is at EUR 1.1570 right now. So, as long as Sterling finds enough buyers to keep it above there, the upward trend remains intact and another attempt at EUR 1.1750 is highly likely. GBPEUR is at €1.1670 this morning.
This morning starts with a German business climate index from the Ifo institute. It looks set to still be on the rise and that would keep the Euro in demand. The three biggest hurdles of the week for the Euro are the ECB meeting minutes which will be released on Thursday, consumer inflation for the eurozone on Friday and the German GDP data, also due on Friday. The forecasts for the inflation and GDP data look quite optimistic I think, so be ready for volatility around these releases.
GPAUD at fresh 14 month high
The GBPAUD exchange rate continues to make fresh 14-month highs. That pair is pushing AUD 1.87 this morning. Were it not for the UK’s problems mentioned above, you would have to conclude that this pair ought to be much higher. More clarity from the UK would push it higher but seeing fewer lockdown measures in Australia and continued demand for Australia’s raw material exports would swing the balance the other way. We get Australian consumer inflation data early on Wednesday but that is unlikely to have the oomph to shift the dial for GBPAUD.
US Fed meeting is key focus for the week
Undoubtedly the big news of the week is the US Federal Reserve’s interest rate decision. I sound like a stuck record on central banks these days when I say, ‘no change is expected’ but that is how it has been for several years now. In the case of the Fed, no change is expected but they have started prepping the markets for change. The tone of their statement regarding that longer-term change is the key this week. Early rate hikes and/or lower QE spending will boost the USD. An absence of such talk will weaken it.
I’ll end with the EURUSD chart which is also showing a long-term upward trend but this one started back in September 2020. The Support for the Euro can be seen at $1.1750 or thereabouts. If the USD was able to shove the EUR below that level, then we would have to lower our expectations for this pair and $1.1620 would be the first target.
And my last word is on the British and Irish Lions who slugged it out with South Africa for the first win in the test series. It wasn’t the prettiest match and there were a few controversial moments but great entertainment.