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The GBP/USD pair rose to an intraday high of 1.5596 in the NY session as markets turned a blind eye towards an upbeat US durable goods report. The US dollar was offered across the board as markets speculated that the Fed could put more emphasis on the overseas turbulence (rout in Chinese equities) in its policy statement on Wednesday, indirectly hinting at a possible delay in the rate hike. The resulting weakness in the US Treasury yields weighed over the USD. Meanwhile, a rise in Gold prices in the Asian session on Monday also helped GBP and other European currencies began the week on a positive note.
Focus on UK GDP data
Second quarter GDP numbers are scheduled for release on Tuesday and growth is expected to have accelerated at a faster pace.
UK GDP YoY Q2: expected 2.6%, previous 2.9%
UK GDP QoQ Q2: expected 0.7%, previous 0.4%
A marked improvement in the economy is expected, mainly on account of low interest rates, a decisive General Election result and rising incomes. The trade deficit also narrowed in May, which further lends support to the GDP number. The GBP may could rally to 1.5590-1.56 levels in anticipation of the upbeat GDP number. Consequently, a break above 1.56 could happen only if the GDP number is higher than the estimates. With no positive surprises, the GBP/USD pair is more likely to fall back to 1.5550 levels.
Technicals – Failure to sustain above 1.5568 could be bearish
The spot struggled to extend gains above 1.5593 (61.8% Fib R of 1.5671-1.5467) in the previous session and closed below 1.5568 (38.2% Fib R of 1.7191-1.4563). At the moment, the spot is trading around 1.5575. Fresh bids are seen only above 1.5593. On the other hand, failure to sustain above 1.5568 could bring in
fresh offers and drive the spot below its 50-DMA at 1.5550 towards 1.55 levels. In case, the UK GDP fails to provide a positive surprise we could see the spot drop below 1.5568 and extend losses towards 1.55 levels. On the other hand, a break above 1.5593 could send the spot higher to 1.5650-1.5670 levels.
EUR/USD Analysis: EUR once again rises on risk aversion in stocks
The EUR/USD pair rose to an intraday high of 1.1128 on Monday amid the sell-off in stock markets across the globe. The previous session added to the growing evidence that the EUR is increasingly being used as a funding currency, and thus, strengthens during risk aversion in the equity markets. The EUR strength may have also been due to markets speculating that the fed may delay its rate hike due to turbulence in the overseas markets (China stock market rout).
EUR unlikely to spike as Asian stocks and US index futures stabilise
The Chinese equity markets have extended Monday’s drop by another 1%. However, the US index futures are still holding pretty well in the positive territory. Gold prices are struggling as well, trading around USD 1195/Oz levels. Consequently, the EUR is unlikely to witness a sharp jump as it did in the early European session on Monday.
Technicals – stuck at 50-DMA
The spot clocked a high of 1.1128 but closed below the 50-DMA currently located at 1.11 handle. The prices witnessed an upside breakout from the rising channel on the hourly chart, but the momentum stalled at 1.1126 (50% of May-June rally). The spot is now back inside the rising channel with immediate resistance at 1.1089. Failure to rise above the same, followed by a drop below 1.1083 could lead to an minor head and shoulder neckline seen on the hourly chart at 1.1075. A break below the same could open doors for 1.1030 (hourly 50-MA). On the higher side, fresh bids are seen only above 1.1126.