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Pound Sterling: Bailey in Clearest Rate Hike Warning Yet

Pound Sterling: Bailey in Clearest Rate Hike Warning Yet


The British Pound is close to the previous week's highs against the Euro and Dollar with markets on Monday digesting perhaps the strongest hint yet that the Bank of England is intent on raising interest rates soon.


Pound Sterling Data and Latest News


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Euro Data and Latest News


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U.S. Dollar Data and Latest News


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EUR/USD Price Action Reflects "a Highly Nervous Market"

Euro vs. Dollar

Image © Adobe Images

The EUR/USD exchange rate continues to churn in the 1.18-1.1860 region, leaving analyst Richard Perry of Hantec Markets warning of false technical signals in the current market.

The repeated swings higher and lower over recent sessions reflect a highly nervous market, lacking certainty.

It shows false signals are likely and despite the market ticking higher early today, we should not be overly confident of any trending moves.

There are huge fundamental newsflow events in the coming days (ECB, US GDP, US election) which leave it likely that these daily swings could continue.

EURUSD chart

Momentum indicators retain a positive bias (have done since the break above 1.1830 last week) but this is a difficult market to navigate right now.

Initial support at 1.1785 needs watching as a close below would open a move back lower once more.

A close above 1.1880 opens 1.1900/1.1915.

Whilst our preference is for a weaker dollar, the negative market sentiment is preventing this move from trending EUR/USD higher.

EURUSD forecasts

Whilst markets have seemingly been hopeful (or should that be “duped”?) by the apparent signs of progress in the fiscal stimulus negotiations, as yet, there is nothing to show for it.

We are now just one week before polling day for the US Presidential and Senate election (where 35 of the 100 seats are up for re-election).

Despite the Democrat House Speaker Pelosi remaining “optimistic” there is an apparent fatigue setting in for market sentiment.

Agreement will not happen before the elections and after that, it is open to significant uncertainty on the results.

This lack of certainty on fiscal stimulus, coming as COVID-19 infections hit record levels in the US and the second wave takes full force across Europe, is leaving markets increasingly nervous.

Equities felt the full force of these concerns yesterday as Wall Street fell sharply, also with the dollar gaining strength on a safe haven bias.

There is a slight unwind of these moves early today, but how far this develops in the coming days will be shown through bond markets.

A flattening of the US yield curve (which continues this morning with US 2s/10s spread narrowing) would reflect risk aversion.

Wall Street futures have stabilised early today, but if bond yields continue to fall (and curve flatten), the dollar will climb and market sentiment will favour safe havens (such as the yen and the dollar)

It is a big US theme to the economic calendar today, but don’t forget the US announcements are an hour ahead this week as the daylight savings time shift is not until next weekend.

US Durable Goods Orders are at 1230GMT with core ex-transport good expected to increase by +0.4% in the month of September (after a +0.6% increase in August).

The Case Shiller House Price Index for August is at 1300GMT and is expected to improve to 4.2% (after +3.9% YoY in July).

The key data release for the day is US Conference Board’s Consumer Confidence at 1400GMT which is forecast to improve slightly to 102.0 in October (from 101.8 in September).