The British pound initially fell slightly during the trading session, breaching below the 200-day moving average, but then turning to show positive signs. What’s particularly interesting about this area is that it’s the pinnacle of the descending flag we’ve been in, so I think at this point it makes sense that we have a battle in our hands. If we continue to break down, we could go to the 50-day EMA, maybe even down to the bottom of the bearish flag we were in. Regardless, this pattern seems to have been basically broken, but it will be interesting. To see if this previous trendline holds support.
Much of this will depend on US interest rates, as they have a significant impact on the US currency itself. With the idea of cooling inflation in the US, the US dollar came under heavy pressure during Tuesday’s trading session, but now we have to determine whether or not we can continue this kind of momentum. As a general rule, these types of candlesticks rarely occur in a vacuum, so I expect we will probably have some near-term consolidation waiting for it to happen.
However, if we break above the 1.25 level at the daily close, I think the British pound has a lot of moving upwards. At this point, I expect to move to 1.28 quickly as well. This will be a continuation of the overall reversal, or perhaps even the rise in short coverage that we have seen recently. Whether or not the market continues to see bullish momentum is about to become clear here in the next couple of sessions, but it makes sense that we will see the market trying to shed a great deal of foam
Sterling Falls: The Impact of US Retail and Inflation Data
The pound extended losses on Thursday. In the European session, the GBP/USD is trading at 1.2401, down 0.11.%.
The pound is experiencing a volatile week. The GBP/USD rose 1.8% on Tuesday after a weak US inflation reading and rose to a two-month high. However, the pound has since made about half of these gains and is trading at the 1.24 line. The UK will release retail sales on Friday, which could lead to more volatility..
UK retail sales in September were shocking, coming in at -0.9%m/m, beating expectations of 0.2%. Markets expect a rebound in October, with a forecast of 0.3%. September was unusually hot, leading to a drop in autumn clothing purchases. Consumers remain very pessimistic about the economy and are under pressure from rising heating and fuel costs, high borrowing costs, and a weak labor market.
On the inflation front, there was good news on Wednesday as inflation fell to 4.6%, down sharply from 6.7% and below expectations of 4.8%. This was the lowest level since October 2021 and inflation finally fell below 5%. However, the Bank of England has stressed that the battle against inflation is far from over, predicting that inflation will not fall to the 2% target until late 2025..
In the United States, producer prices fell 0.5% month-on-month in October, their biggest drop since April 2020 and below expectations. Lower gasoline prices were a major factor in the soft version. Retail sales for October fell 0.1%, beating expectations of 0.3% and halting a six-month winning streak. The weak numbers are further evidence that the U.S. economy is slowing.
