GBPUSD, Weekly & H1
The Pound, which is apt to underperforming during risk-off positioning phases, edged out a new two-month low versus the Dollar today, at 1.3786, before steadying and reversing over one big number to 1.3892. The UK currency also saw a four-day low against the Euro. The risk-off sentiment in global markets, as markets digest the Fed’s tilt to the hawkish side, is a negative for the Pound, with the UK economy being open and having a large current account deficit.
New Covid infections have spiked to a daily rate of over 9k, though there is a silver lining to this cloud in that the spread is being accounted for by younger unvaccinated adults while older, vaccinated people are largely proving to be immune. In the coming weeks, the vast majority of adults over the age of 18 will have been vaccinated with at least one dose. Well over 80% of the adult population now have antibodies, whether through vaccination or having had the virus in the past, and there is also growing evidence that existing vaccines are resistant to the Delta variant (especially among those who have received a double dose of the vaccine).
The BoE’s Monetary Policy Committee meets this week (announcing Thursday). It should be uneventful and a snooze for markets. Expectations are for no changes in policy with basically the same stance as seen in May, including a unanimous vote on maintaining the 0.10% repo rate and another 8-1 vote on QE with Haldane, who is leaving the MPC, again dissenting in favour of lowering the size of the quantitative easing programme. The BoE is likely to remain optimistic on growth despite the renewed Covid problems, while discounting the acceleration in inflation, still deeming them as temporary. And now with the hawkish shift in the Fed, the BoE has cover to continue its current stance. Look for the Bank to affirm that the rate of QE purchases will slow down, as previously signalled, which the BoE stressed was purely an operational decision that “should not be interpreted as a change in the stance of monetary policy.”
How the markets digest any variations from the expected was clearly demonstrated last week as the USD continues to accrue from the hawkish tilt that the Fed suggested with the dot-plots pointing towards rate hikes commencing in 2023 as opposed to 2024. Last week, Cable lost some 300 pips, its worst week since the first week of September last year when it lost over 460 pips. It closed under the 21-period EMA too, confirming a bearish divergence on the MACD which has been brewing for some time.
The GBPUSD currency pair ended the trading week near the 1.3800 area, matching the May month bullish candle. The pair continues to move as part of the decline and the formation of a bearish double top pattern. So far the intraday bias remains to the downside. A move below the May month low around (1.3800) would test the Weekly support at 1.3700, the Spring lows at 1.3670 and even 2021 lows at 1.3450. As long as the support holds, it will create a consolidation move to the upside, for the 1.3950 minor resistance and the 1.4000 psychological level. The 2021 high is 1.4250, but the pair has failed to close a week over 1.4200 this year.
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Stuart Cowell
Head Market Analyst
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