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Have Markets Over-Reacted To Last Week’s Inflation Data?

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Welcome to a new trading week. Risk appetite improved around the world after signs of cooling in U.S. inflation and the prospects of a dovish tilt by the Federal Reserve. The U.S. dollar weakened against other counterparts. However, markets may have over exaggerated last week’s inflation print since a few declines in inflation does not mean that inflation pressure is finally over and that the Fed is shifting from hawkish to dovish. The market’s risk appetite could thus be premature with limited upside in both EUR/USD and GBP/USD.

For the British pound, the U.K. will release inflation data on Wednesday.

GBP/USD

The shift in global risk sentiment and the large dollar sell-off benefitted the pound and sent sterling soaring, lifting it above 1.16 and further to the 1.17-1.19 resistance zone. Sterling bulls should however be careful. U.K. employment and inflation data are on tab this week, leaving the pound vulnerable.

From a technical perspective, the pair is overbought with the current resistance zone ranging from 1.17 to 1.19. We expect any further gains to be limited to a maximum of $ 1.1940. The most likely scenario in our opinion is a correction towards 1.15/1.1450.

EUR/USD

Speculation for a smaller Fed rate hike in December could keep the pair afloat over the coming weeks. However, the pair is overbought, making it vulnerable for a correction toward the parity level. A bullish breakout above 1.0370 on the other side could see a bullish extension towards 1.06.

Disclaimer: All trading ideas and expressions of opinion made in the articles are the personal opinion and assumption of MaiMarFX traders. They are not meant to be a solicitation or recommendation to buy or sell a specific financial instrument.

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Bullish Breakout

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The British pound experienced a bullish breakout despite the Bank of England which disappointed with a 25bp rate hike move. U.K. inflation is expected to hit as high as 11% later this year. The BoE however signaled that it is prepared to unleash larger moves if needed. Trading the cable was messy yesterday, with an initial bearish move towards 1.2040 that quickly reversed and now the pair is trading above 1.23. In other words, we weren’t able to catch the big gain we were looking for.

GBP/USD tested the 1.24-resistance from where it bounced off. If the pair holds above 1.2250/1.22, sterling bulls may try to push for a test of 1.25. Below 1.2140 however, we expect the pair to head south with lower targets seen at 1.1950 and 1.19.

The EUR/USD rose on more hawkish ECB expectations and tested the 1.06-level. As long as the 1.0350-support holds, gains could be extended towards 1.07 and 1.08.

Have a good weekend.

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Is The Pound Sterling Overvalued?

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The pound sterling corrected some of its recent gains against the U.S. dollar after the GBP/USD failed to break above 1.2660. As we stated in previous analysis, we expect an even stronger correction that may lead to a slide back towards 1.24 in the near-term. Some investors are even most bearish on the pound, saying the market has to go much further in pricing out Bank of England rate hikes. Some market participants think that the pound is overvalued in the long-term pointing on concerns over U.K. financial imbalances.

However, from a technical point of view the GBP/USD remains in a downtrend with a next resistance seen at 1.2680. Sterling bulls may prefer to wait until 1.27 is cleared to jump in on buy attempts toward 1.30.

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GBP/USD

Long @ 1.2620

Short @ 1.2560

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GBP/USD Heads Towards 1.33, Entering Overbought Territory

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Overall, Tuesday has been a profitable day with two profitable long positions in the GBP/USD and DAX. The only loser was the EUR/USD where we had to record a losing trade with our buy attempt.

GBP/USD: Sterling bulls should be careful since the pair entered overbought territory, making corrections more likely now. However, if the cable can hold above 1.3180, we could see further gains towards 1.3450. Below 1.3170, bears are back in control.

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Disclaimer: All trading ideas and expressions of opinion made in the articles are the personal opinion and assumption of MaiMarFX traders. They are not meant to be a solicitation or recommendation to buy or sell a specific financial instrument.

Try out our new signals for cryptocurrencies:

ETH/USD

Long @ 2990

Short @ 2930

We wish you good trades!

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British Pound Depreciates After Fresh Restrictions

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Wednesday’s worst performer was the British pound which fell to an annual low after U.K. Prime Minister Boris Johnson tightened pandemic rules. Traders were able to profit with our short entry at 1.3230. If GBP/USD is unable to stabilize above 1.3250, we expect at least a test of 1.3150. Falling below 1.3140 will shift the focus to the lower crucial 1.30-mark.

Traders should brace for heightened volatility in the next days as we have tomorrow’s U.S. consumer inflation numbers on tab followed by a crucial Federal Reserve meeting next week.

The EUR/USD recovered some of its recent losses after the 1.1230-zone proved to hold as a support. The pair now faces a crucial resistance area between 1.1370 and 1.1430 that could attract sellers.

 

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Try out our new signals for cryptocurrencies:

ETH/USD

Long @ 4390

Short @ 4340

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Traders See British Pound to Fall to 1.30 By Year-end

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The British pound wasn’t able to stabilize above 1.3660 and fell back below 1.36 amid speculation that the prospect of several Bank of England rate hikes would darken the outlook for growth and consumer sentiment. Consumers are already grappling with soaring energy prices and supply chain disruptions and a BoE tightening within that slowdown is by many strategists seen as a mistake. Some traders brace for the pound to fall toward 1.30 by year-end.

In short, a wave of bets against sterling is starting to build and we are curious to see where the pound is headed for in the next weeks and months.

Currently we see the 1.34-1.3370 area as a support zone in the GBP/USD while a break below 1.3370 could lead to further losses toward 1.32.

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No Profits In Thin Summer Market

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The U.S. consumer price index climbed 0.6 percent, the second-largest advance in more than a decade. Simultaneously, U.S. treasury yields began to climb immediately after inflation numbers were released and while all these factors would have driven the U.S. dollar higher in the past, what we are seeing in present days is a lack of direction in the dollar’s performance. The greenback ended the day virtually unchanged against the euro and even lower against the British pound.

The EUR/USD trod water between 1.2195 and 1.2140, making it impossible for daytraders to benefit from these small swings. As expected, we heard nothing new from the European Central Bank where President Christine Lagarde renewed a pledge to deliver faster bond buying for now.

The GBP/USD on the other hand, trended upwards towards 1.4180 and more gains could be in play towards 1.4280.

Elsewhere, the DAX fluctuated choppily sideways without a clear direction. We will wait and see whether conditions change within the next days. For now, we will focus on a price range between 15800 and 15400.

All in all, it was none of our favorite trading days and if market conditions continue like this with the current summer doldrums accompanied by low volumes, a lack of direction and unprofitable sideways fluctuations it is not worth placing any trade.

We wish you a beautiful weekend.

We wish you good trades!

Any and all liability of the author is excluded.

Copyright © All Rights Reserved 2021 MaiMarFX.

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British Pound Rises Amid Economic Optimism

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The market mood was positive Monday amid economic optimism.

The best performer was the British pound which broke out of its consolidation range, heading for a test of the 1.4250-level. The U.K. plans to fully reopen the economy on June 21 and the pound’s strength reflects the nation’s relative success in containing the pandemic. The U.K.’s economic recovery is also fueling speculation the Bank of England could start to raise interest rates by August 2022.

GBP/USD: Technically, the 1.42-level could now serve as a short-term support while the next target for sterling bulls is 1.43. Above 1.4320 bulls may try to extend the rally towards 1.4376, the April 2018-high.

DAX: It seems as if the index is taking a breather given its recent lackluster performance. We see a next bullish target at around 15680 whereas on the downside, the 15200-area could serve as a support.

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We wish you good trades!

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All Eyes On The British Pound And The BoE Decision

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The best performer on Wednesday was the DAX which rebounded towards 15200 while we have made a large catch with our long entry at 15020 that ended with a 100-points profit.

Today the focus turns to the British pound and the Bank of England’s monetary policy decision. Some investors expect the central bank to slow the pace of bond purchases by a small amount instead of ending the stimulus abruptly in November. Policy makers are also expected to upgrade forecasts for growth and inflation today.

The pound will rally if the BoE tapers more drastically than currently expected. However, a slowdown in the pace of purchases could probably not have the same impact as the tightening seen by the Bank of Canada last month but it will be important to know whether rate hike expectations are being brought forward and whether there is still a likelihood of a further total envelope or not as the U.K. economy rebounds sharply from pandemic lows. If the BoE disappoints the market’s hawkish expectations, the pound could fall below 1.38.

The Bank of England decision is scheduled for 11:00 UTC.

GBP/USD

The cable remained in a narrow trading range ahead of today’s risk event and we expect some larger movement around the BoE decision. Above 1.3915 we see a next resistance at 1.3950 which needs to be broken before shifting the focus to 1.40 again. A bullish breakout above 1.4010 could result in a strong bullish move towards 1.42. On the downside we will keep an eye on the support levels. A break below 1.38 could lead to a test of 1.3770, followed by a lower target at 1.37. Below 1.3660 the pound could extend its slide towards 1.3550.

The next risk event for the pound will be today’s parliamentary elections in Scotland. The election could have profound consequences for the U.K. since it will decide not just who runs Scotland, but whether the battle for another Scottish independence referendum by the end of 2024 is back on the table.

Scotland elections could thus prove a litmus test for the nation’s appetite for breaking away from the United Kingdom. There is potential for massive chaos across the U.K.’s economic landscape in the next years if a split happens. Some investment managers see a 10 percent devaluation of the pound amid financial chaos and recession. The market is currently not pricing in such scenario.

We wish you good trades!

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Profitable Weekly Start – More Gains In Store?

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It has been a profitable start to the new week with Sterling trading sharply higher against the U.S. dollar and the DAX steadying above 15200.

GBP/USD: The cable rose to a high of 1.3777 and provided shot-term bulls a good gain. Another break above 1.3775 could now lead to a test of 1.38 and further 1.3835. Below 1.3720 however, sterling could give up gains towards 1.3680. Bears in this pair should wait for a third test of 1.3670 which could consequently result in a clear break and steeper losses towards 1.36.

DAX: Volatility remains at muted levels with the index ranging in narrow price spans between 15280 and 15180. We generally favor the uptrend with a next higher target at 15850 but traders should also brace for potential corrections towards 15000 (blue rectangle). The 15000-zone could be a tempting entry area for bulls.

EUR/USD: The euro traded in a narrow price range and we will wait for a renewed break above 1.1920 in order to anticipate higher targets between 1.1970 and 1.1990. A bearish break below 1.1860 however, could drive the pair lower towards 1.1830.

Today we will have the U.S. CPI report scheduled for release at 12:30 UTC and if there is a strong upside surprise, the U.S. dollar will rise.

We wish you good trades!

Any and all liability of the author is excluded.

Copyright © All Rights Reserved 2021 MaiMarFX.

www.maimar.co

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