The GBP/USD went to a high of nearly 1.14950 on the 4th and 5th of October. While some traders may believe this had a lot to do with the ‘turnaround’ of the Liz Truss Tory government, they might be wrong. The U.K government essentially backed away from its proposed tax policy when it came under a large amount of criticism. Prime Minister Liz Truss reversed from her stated convictions within the span of a handful of days; this did not win many fans among financial institutions.
The GBP/USD will enter the start of this week’s trading near the 1.10900 vicinity. Before going into this past weekend, the GBP/USD was trading almost politely near the 1.12100 ratio when suddenly the jobs data came from the U.S and was stronger than had been anticipated turning the markets on their heads again.
Combination of Poor Leadership and Unclear Interest Rates Causing Havoc
Early last week not only did the U.K government reverse its stated economic policy, but financial houses started to believe the U.S Federal Reserve would begin to soften its interest rate rhetoric, this created upwards momentum in the GBP/USD. Global equity indices gained early last week and there were slight sounds of optimism being heard. However, rhetoric from U.S Fed officials late in the week, coupled with stronger than anticipated jobs data combined to put create strength in the USD on Friday.
- The notion that inflation is suddenly going to dramatically drop was ‘hurt’ by the rising costs of Crude Oil the past week, which suddenly is trading over 90.00 USD again.
- The notion that the U.S Federal Reserve will hike its interest rate by another 0.75% in November has become an anticipated possibility.
Inflation Remains a Problem and the Rise of Crude Oil Prices is Problematic for the GBP/USD
Technical traders may feel compelled to scream at this juncture during the reading of this article, but one more fundamental problem exist, inflation. The shadow from inflation which is hitting the U.K and global economies is not about to fade quickly.
Crude Oil prices have climbed for nearly 8 trading sessions. High inflation equals higher interest rates. While the GBP/USD did manage to climb to values seen on the 21st of September in the early part of last week, the rise was met with a strong amount of selling due to fundamentals as financial houses grew nervous. The coming week of trading appears ready for more fragile behavioral sentiment; the lower prices of the GBP/USD were only hit before going into the weekend.
GBP/USD Weekly Outlook:
Speculative price range for GBP/USD is 1.06275 to 1.13045
Because financial houses went into the weekend rather nervously, it would not be surprising to see bearish activity continue early this week. The 1.10000 level for the GBP/USD may work as an important psychological indicator for speculators. If this juncture is broken lower, traders should be prepared for the potential of the GBP/USD then testing the 1.09000 to 1.08500 ratios. While trading below this mark may feel like the selling is too strong, we have seen this selling ‘show’ from the GBP/USD recently.
Traders should anticipate more volatile conditions in the coming days ahead. It is doubtful the dark economic shadows covering global markets are about to disappear, this could cause more downward price action for the GBP/USD. Traders are correct to wonder where support will start to prove durable. Perhaps the 1.10000 level will prove to be strong, but if nervous conditions persist, Crude Oil prices remain elevated and global equities suffer, the GBP/USD could sink lower.
Looking for upside for the time being, should be with realistic targets when speculators believe the GBP/USD has been oversold to try and take advantage of slight reversals higher. There is reason to suspect the 1.13000 level above may be viewed as rather durable point for resistance this week. The notion that the U.S Federal Reserve is going to stop raising its interest rate in a hawkish manner has essentially been killed off momentarily and financial houses will need to come to grips with their outlooks which remain murky.
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