GBP/USD, gold to withhold dollar strength? European open – 17/10/2023

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Matt Simpson financial analyst
By :  ,  Market Analyst

Asian Indices:

  • Australia's ASX 200 index rose by 32.5 points (0.46%) and currently trades at 7,059.00
  • Japan's Nikkei 225 index has risen by 370.59 points (1.17%) and currently trades at 32,029.62
  • Hong Kong's Hang Seng index has risen by 123.05 points (0.7%) and currently trades at 17,763.41
  • China's A50 Index has risen by 60.66 points (0.5%) and currently trades at 12,185.16

 

UK and Europe:

  • UK's FTSE 100 futures are currently down -6.5 points (-0.08%), the cash market is currently estimated to open at 7,624.13
  • Euro STOXX 50 futures are currently down -1 points (-0.02%), the cash market is currently estimated to open at 4,148.86
  • Germany's DAX futures are currently up 7 points (0.05%), the cash market is currently estimated to open at 15,244.99

 

US Futures:

  • DJI futures are currently down -32 points (-0.09%)
  • S&P 500 futures are currently down -5 points (-0.11%)
  • Nasdaq 100 futures are currently down -16.5 points (-0.11%)

 

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Bank of England’s chief economic Huw Pill warned on Monday to assume a “premature victory” over the fight against inflation, just because inflation is slowing. And this follows on from last week’s comment that whether more rate hikes are coming remains an “open question”. It is fair to say that the BOE have had egg on their faces a couple of times during this tightening cycle by signalling to markets that they are close to a pause, only to see inflation rip above inflation forecasts. So it makes sense that they are treading very carefully after holding interest rates steady for the first time in September, after 14 consecutive rate hikes.

The BOE England next meet on November 2, although whether they hike at that meeting largely depends on data this week. Wages and employment data is scheduled today at 07:00 BST, but with average earnings still at 7.8% y/y or 8.3% y/y including bonus, we’re not expecting miracles of deflationary figures today. With that said, employment fell at its fastest pace since the pandemic of over -200k, and is expected to fall a further -195k today.

 

Events in focus (GMT+1):

Today’s UK wages and employment data could set the tone for tomorrow’s inflation report, which itself could ultimately decide whether the BOE hike again in November. And with the data hot on the heels of hawkish comments from some BOE members, risks for the pound could be skewed to the upside unless data continues to soften overall.

Canada’s inflation report warrants a look because markets have begun pricing in the prospects of another hike. Whilst headline CPI was ok, the BOC’s preferred measures of median and trimmed mean turned higher from already elevated levels. Like the BOE, the BOC could be forced to hike at their next meeting if inflation continues to misbehave.

Three Fed members are set to speak, and we also have US retail sales, industrial production and builder’s confidence reports for investors to mull over.

 

  • 07:00 – UK wages, employment
  • 10:00 – German ZEW economic sentiment
  • 10:05 – BoE MPC Member Dhingra Speaks
  • 13:00 – FOMC Williams speaks
  • 13:30 – US retail sales
  • 13:30 – Canda CPI
  • 14:15 – US industrial production, capacity utilisation, manufacturing production
  • 14:20 – FOMC Bowman
  • 15:00 – NAHB US housing market index
  • 15:45 – FOMC member Barkin speaks

 

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GBP/USD technical analysis ( chart):

GBP/USD was very much the champion of the year among FX major, up until it topped in July. Its false break above 1.3100 marked the beginning of an -8.4% decline to the October low, as traders continued to prices in weaker economic data and a peak BOE rate.

Yet we can see little in the way of a sizeable retracement on the daily chart against that -8.4% decline. A false break of 1.21 sparked a first wave higher, and this time prices held above 1.21. If data comes in hot for the UK and the US remains on the back foot, then a move towards the May low / 1.1230 could be on the cards. Take note that an ABC correction (where the length of A = B) suggests an ABC correction could land around 1.2450.

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Gold technical analysis (4-hour chart):

Gold has been consolidating this week, and that is not such a bad thing given its strong surge on Friday. But with gold being notorious for unfavourable spikes in the opposite way of its intended direction, I would not be too surprised to see it make a run for the 1900 area before quickly reversing high (presumably as dip buyers step in to support the market).

However, note that lack of liquidity around 1900 from the prior rally. So if we see a break beneath 1900, my guess is it could be headed for 1870 near the high volume node.

But if it can hold above 1900, my bias is for a move towards the 1950 resistance zone.

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View the full economic calendar

 

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

 

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