Comment: Trading in the foreign exchange market is often a tricky undertaking. Being aware of exactly where exchange rate will go next would seem very simple but escapes nearly all traders. The main reason for that is that they generally don’t take into account all the information that can be found. Only researching indicators and graphs only provides half the picture. To obtain an advantage on the market information is important and knowing where to locate it is actually crucial. We try to bring everyone the most important content that will help you make smarter trading choices. This short article, Lloyds Pound To Dollar Forecast: £/$ Exchange Rate Technical Analysis Points To A Short-term Support At 1.3850-1.3800 gives you the latest details about exactly where the professionals think exchange rate will go providing you with a chance to become more profitable in your forex trading
UK/US CPI Inflation released this week. critical event risk for GBP/USD
A wild week of trading in stock markets culminated in a bad week for risk-sensitive currencies and a good week for safe havens such as the Japanese Yen and Swiss Franc.
GBP/USD struggled after hitting 1.40 and close at 1.3830. UK and US inflation are due this week and should pose critical risk for Sterling and the Dollar exchange rates.
Lloyds believe that last Friday’s close means that Cable’s uptrend is intact, but barely.
Foreign Exchange Market sell-off eases as Dow recovers
While fear and volatility reigned most of last week in US stock markets, that degree of drama was missing from Forex as most of the major pairs traded in a pretty subdued manner.
EUR/USD was well off its highs of 1.25 as it finished a little above 1.22.
A rollercoaster in the Dow Jones on Friday saw the major stock index falling a few hundred points before ultimately managing to rally and finish marginally up on the day.
The Australian Dollar and New Zealand Dollar’s both enjoyed the more benign risk conditions as they rallied higher after a tough week.
The Pound/Dollar exchange rate continued to struggle however, and Sterling is now trading back at 1.38 against the Dollar.
The big concern for Pound markets at the end of last week was comments from the EU’s Chief Negotiator Michel Bernier, who suggested that there were some things which were non-negotiable for the EU and thus put the transition agreement with the UK in doubt.
US and UK CPI to drive price action this week
This week promises to be filled with volatility as the US and the UK are set to release CPI figures this week. Given how the major dip in the stock market has been attributed to fears over inflation and tighter policy in the US, there is no question there will be moves after its release. In the UK, inflation is seen as a key factor keeping the Bank of England feeling more hawkish and hence the CPI will be of critical importance. Analysts at Crédit Agricole think that the USD may give up some of its recent gains after inflation next week,
“The near-term outlook for USD will depend on the outlook for US rates and UST yields and, in the particular, the relative steepness of the UST yield curve. To the extent that next week’s US CPI release triggers renewed UST curve flattening, USD may relinquish some of its recent gains. Elsewhere, markets will focus on UK CPI for January.”
US inflation has underperformed for a long time, so it is a fairly safe prediction to say it could well underperform. It is also important to consider that the US Federal Reserve tends to prioritise the PCE inflationary indicator over the CPI, as moves have had a tendency to reverse lately. Alternatively, in the UK, CA also believe the Pound could find renewed support on another figure above 3% keeping the BoE’s hawkish intentions alive,
“Evidence that headline inflation eased further, on the back of the recent appreciation of GBP, while the core remained generally resilient, and on the back of returning domestic price pressures, may corroborate the market view of earlier BoE tightening and thus boost the currency”
Lloyds see GBP/USD exchange rate just about maintaining its uptrend
Governor Carney may have helped Sterling last week with his upbeat outlook on growth and the job market, but he could not keep an oversold Pound from correcting lower on what appeared to be some Brexit concerns but were more likely related to risk conditions as a whole.
Forex analysts at Lloyds bank see evidence that the close above 1.3825, should keep the uptrend in GBP/USD intact,
“Prices surged to 1.4067 on the hawkish BoE, but GBP$ failed to hold these gains. The dynamic suggests we could see another test of short-term support at 1.3850-1.3800. A break there would indicate 1.4345 was a significant top in a broader correction that risks an extension towards 1.3625-1.3550 support. However, while above 1.3825, it remains the case that we could form another higher low in a consolidation process.”
Most asset managers will be hoping that the worst is over in the stock markets, and it will be business as usual on Monday.
The price action on Friday certainly suggested this could be the case, another wobble, however, and the Pound could continue to trade under pressure.
The days of the Pound being a haven appear to be long gone, as Brexit has made the GBP more vulnerable to risk conditions as a whole.
Most major institutions are touting the solid fundamentals of global growth and as such, it would appear many stand ready to buy the dip, albeit probably with less enthusiasm than they did pre Monday’s flash crash.