The pound and the dollar are in focus on Wednesday
September 13, 2023 4:22 am
I previously mentioned that all the interesting events will start on Wednesday. Tuesday also had some interesting reports, particularly the UK unemployment or wage data. However, if these reports did influence market sentiment, they did it in a very strange way, and their values are quite difficult to interpret. For example, how can we characterize high wage growth? Is it good for the Brits or not? If wages are rising, it means inflation could start rising again (Bank of England Governor Andrew Bailey also mentioned this). Then the BoE might raise rates several more times, which are not currently taken into account in prices. But does the market believe in this, and is the BoE capable of easily and simply raising rates “several more times”? I doubt it. From this perspective, it seems that rising wages, like rising inflation, will no longer affect the central bank’s actions.
The UK will release important GDP and industrial production data on Wednesday. It is estimated that in July, GDP will contract by 0.2-0.3% MoM, and industrial output will fall by 0.6-0.8%. Such reports are unlikely to support demand for the British currency. Unless the actual values turn out to be higher. However, it is very difficult to expect positive economic data from the British economy right now. The BoE’s interest rate continues to rise, which means that financial conditions are deteriorating. At the same time, inflation remains high. It’s a complex equation that will be very difficult for the BoE to solve.
The US inflation report is much more important and it’s also quite complex. If we assume that inflation rose again in August, how might this affect the Fed’s decision next week? There are reasons to believe that it won’t have much impact. There are also grounds to believe that the rate might increase, although previously, the FOMC made decisions to raise rates once every two meetings. But two consecutive accelerations in inflation could persuade the monetary policy committee of the US central bank otherwise.
Based on everything mentioned, there are many questions but no answers yet. I fear that the currency market may become quite active Wednesday and Thursday, but both instruments may frequently change their direction. In my opinion, it’s best to use the Fibonacci level at 100.0% for the British pound as a reference point. A successful breakthrough could pull down both instruments again.
Based on the conducted analysis, I came to the conclusion that the upward wave pattern is complete. I still believe that targets in the 1.0500-1.0600 range are quite feasible. Therefore, I will continue to sell the instrument with targets located near the levels of 1.0636 and 1.0483. A successful attempt to break through the 1.0788 level will indicate the market’s readiness to sell further, and then we can expect to reach the targets I’ve been discussing for several weeks and months.
The wave pattern of the GBP/USD pair suggests a decline within the downtrend. There is a risk of completing the current downward wave if it is d, and not wave 1. In this case, the construction of wave 5 might start from the current marks. But in my opinion, we are currently witnessing the first wave of a new segment. Therefore, the most that we can expect from this is the construction of wave “2” or “b”. An unsuccessful attempt to break the 1.2444 level, corresponding to 100.0% on the Fibonacci scale, may indicate the market’s readiness to build an upward wave.
The material has been provided by InstaForex Company – www.instaforex.com
I previously mentioned that all the interesting events will start on Wednesday. Tuesday also had some interesting reports, particularly the UK unemployment or wage data. However, if these reports did influence market sentiment, they did it in a very strange way, and their values are quite difficult to interpret. For example, how can we characterize high wage growth? Is it good for the Brits or not? If wages are rising, it means inflation could start rising again (Bank of England Governor Andrew Bailey also mentioned this). Then the BoE might raise rates several more times, which are not currently taken into account in prices. But does the market believe in this, and is the BoE capable of easily and simply raising rates “several more times”? I doubt it. From this perspective, it seems that rising wages, like rising inflation, will no longer affect the central bank’s actions.
The UK will release important GDP and industrial production data on Wednesday. It is estimated that in July, GDP will contract by 0.2-0.3% MoM, and industrial output will fall by 0.6-0.8%. Such reports are unlikely to support demand for the British currency. Unless the actual values turn out to be higher. However, it is very difficult to expect positive economic data from the British economy right now. The BoE’s interest rate continues to rise, which means that financial conditions are deteriorating. At the same time, inflation remains high. It’s a complex equation that will be very difficult for the BoE to solve.
The US inflation report is much more important and it’s also quite complex. If we assume that inflation rose again in August, how might this affect the Fed’s decision next week? There are reasons to believe that it won’t have much impact. There are also grounds to believe that the rate might increase, although previously, the FOMC made decisions to raise rates once every two meetings. But two consecutive accelerations in inflation could persuade the monetary policy committee of the US central bank otherwise.
Based on everything mentioned, there are many questions but no answers yet. I fear that the currency market may become quite active Wednesday and Thursday, but both instruments may frequently change their direction. In my opinion, it’s best to use the Fibonacci level at 100.0% for the British pound as a reference point. A successful breakthrough could pull down both instruments again.
Based on the conducted analysis, I came to the conclusion that the upward wave pattern is complete. I still believe that targets in the 1.0500-1.0600 range are quite feasible. Therefore, I will continue to sell the instrument with targets located near the levels of 1.0636 and 1.0483. A successful attempt to break through the 1.0788 level will indicate the market’s readiness to sell further, and then we can expect to reach the targets I’ve been discussing for several weeks and months.
The wave pattern of the GBP/USD pair suggests a decline within the downtrend. There is a risk of completing the current downward wave if it is d, and not wave 1. In this case, the construction of wave 5 might start from the current marks. But in my opinion, we are currently witnessing the first wave of a new segment. Therefore, the most that we can expect from this is the construction of wave “2” or “b”. An unsuccessful attempt to break the 1.2444 level, corresponding to 100.0% on the Fibonacci scale, may indicate the market’s readiness to build an upward wave.
The material has been provided by InstaForex Company – www.instaforex.com
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