US Dollar Softer Following Inflation Data, Pound and Euro Forecast to Advance
The US dollar family is under scrutiny with focus turning to two key events in the US calendar today.
If GBP/USD does fall below 1.564 then currency markets could witness further downside with 1.5615 & 1.5575 as targets.
All eyes will be on the inflation data and July Fed minutes, with markets looking to extract clear policy signals ahead of the September FOMC meeting.
July CPI inflation rose for the fifth consecutive month as the drag from last year’s energy price declines continued to fade and as core prices rose moderately.
Headline CPI increased by 0.1% m/m in seasonally adjusted terms, just below forecasts for 0.2%.
“Given the central bank’s data-dependent approach, the former will carry greater weight; while our economists expect the headline figure to marginally increase to 0.2% YoY, an incremental uptick in core inflation to 1.9% YoY could well send a potent signal to markets in this global disinflationary environment,” says a note from ING in Holland.
Indeed, an equivalent positive surprise to core prices in May triggered a brief round of broad USD strength, with EUR/USD posting a 1.1% decline as short-term US rates moved higher.
“We think a robust core inflation print and a fairly hawkish tone to the FOMC minutes will be USD supportive given the absence of other market drivers. DXY to move above 97,” say ING.
Latest Pound / US Dollar Exchange Rates
  | Live: 1.3333▲ + 0.05%12 Month Best:1.3789 |
*Your Bank's Retail Rate
| 1.288 - 1.2933 |
**Independent Specialist | 1.3146 - 1.32 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
Forecasts for GBP/USD
Easy Forex say the 1.564 pivot level is central to the outlook.
“Long positions above 1.564 with targets @ 1.572 & 1.577 in extension,” say the currency brokers.
However, if GBP/USD does fall below 1.564 then currency markets could witness further downside with 1.5615 & 1.5575 as targets.
“The RSI has just landed on its neutrality area at 50% and is turning up,” say Easy Forex.
A Turn Lower?
Citibank meanwhile comment that GBPUSD could be due to turn lower off the top of its recent range and may head towards 1.5425 and possibly 1.5330
“GBPUSD posted a bearish outside day yesterday at the top of the recent range. It now looks likely to head lower towards support at the bottom of the range at 1.5425 and potentially to the June low at 1.533.”
The world’s largest trader in foreign exchange notes that UK-US relative curve spread (average of UK 2s, 5s and 10s minus average of US 2s, 5s and 10s) has been a good leading indicator in the past for turns in GBPUSD.
“It has already negatively diverged from the GBPUSD price action suggesting the currency pair should already be heading lower,” say Citi.
Goldman Sachs meanwhile advise they maintain a neutral strategic stance on the pound to dollar exchange rate.
“We sit on side lines with support levels at 1.5535 and 1.5460 and 1.5690/1.5700 as resistance,” says a note from the investment bank to clients.
Turning to the outlook for the euro dollar exchange rate (EURUSD)
Easy Forex are presently favouring Short positions below 1.1095 with targets @ 1.1015 & 1.098 in extension.
“Above 1.1095 look for further upside with 1.1125 & 1.1165 as targets,” say Easy Forex, “even though a continuation of the technical rebound cannot be ruled out, its extent should be limited.”
EUR/USD has eased back to 1.1020 and looks to be attempting to stabilise here just ahead of the 20 day ma at 1.1013.
“The market has recently failed at the 1.1216 July high and has eased lower in its range and we are now relatively neutral - the Elliott wave count is still suggesting scope for a move towards the 1.1348 200 day ma,” says Karen Jones at Commerzbank.
“If seen, the 1.1348/1.1468 resistance area is expected to provoke failure and provoke resume its longer term down trend. Should 1.1010 give way we would allow for slippage to 1.0819/08 – the May and July low.”
