GBP/USD caught between BOE, Fed speak, EUR/USD teases 1.07: European open

Asian Indices:

• Australia's ASX 200 index rose by 11.8 points (0.17%) and currently trades at 6,988.90
• Japan's Nikkei 225 index has risen by 60.75 points (0.31%) and currently trades at 32,332.57
• Hong Kong's Hang Seng index has risen by 37.41 points (0.21%) and currently trades at 17,707.57
• China's A50 Index has fallen by -1.71 points (-0.01%) and currently trades at 12,162.87

UK and Europe:

• UK's FTSE 100 futures are currently down -12 points (-0.16%), the cash market is currently estimated to open at 7,398.04
• Euro STOXX 50 futures are currently down -6 points (-0.14%), the cash market is currently estimated to open at 4,147.37
• Germany's DAX futures are currently down -21 points (-0.14%), the cash market is currently estimated to open at 15,131.64

US Futures:

• DJI futures are currently down -17 points (-0.05%)
• S&P 500 futures are currently down -2.5 points (-0.06%)
• Nasdaq 100 futures are currently down -12.75 points (-0.08%)

Three Fed members including Jerome Powell himself are set to speak today. Given the market’s ‘dovish celebration’ following the Fed’s last meeting, it’s possible we’ll continue to see hawkish comments later today as Fed members try and push back against that initial reaction – like we have already seen this week from Bowman and Logan on Tuesday. Whether markets will listen or continue to call ‘peak rates’ remains to be seen, but it could impact the US dollar and bond yields and stocks markets accordingly. If their comments are surprisingly reserved, it could further weaken the US dollar and help currency pairs such as GBP/USD and EUR/USD resume their bullish moves from last week.

Bank of England (BOE) Governor Bailey may try a similar tactic, to try and steer expectations for BOE cuts to happen sooner than later. Chief economist Hue Pill said the BOE may wait until May 2024, and I’d be surprised if Bailey brings forward any such expectation – assuming he wants to keep inflation expectations lower. The BOE held rates at 5.25% with just three MPV members voting for a hike (down from 4 previously, and 8 the meeting prior).

The Bank of Canada (BOC) have held rates at 5% for the past two meetings, and whilst the statement tipped its hat to moderating price pressures the central bank also kept the door open to a further tightening. Today’s minutes may reveal how close they may be to such a move. And it is worth noting that a BOC survey of market participants see higher rates as a genuine concern.

Events in focus (GMT):

• 07:00 – German industrial production
• 07:45 – France current account, trade balance
• 09:30 – BOE Bailey speaks
• 10:00 – Eurozone retail sales
• 10:15 – Fed Cook speaks
• 14:15 – Fed Chair Powell speaks
• 15:30 – Crude oil inventories
• 18:30 – BOC summary of opinions
• 18:40 – FOMC member Williams speaks
• 21:45 – Fed Jefferson speaks

GBP/USD technical analysis (daily chart):

The British pound reached the initial upside target around 1.24, which included the 200-day MA, 200-day EMA and 100% projection level. The slightly firmer US dollar has pushed GBP/USD lower for a second day ahead of speeches from the BOE governor and three Fed members. And it is really down to how these speeches play out as to whether GBP/USD bulls can regain their footing

However, the rally to 1.24 broke above trend resistance and the previous swing high to confirm a technical change of trend. Therefore this 2-day pullback could simply be a retracement against the strong rally from 1.22, which means I’m on the lookout for a swing low.

EUR/USD technical analysis (4-hour chart):

Like its FX major peers, EUR/USD capitalised on USD weakness on Friday but has since retraced. The 1-hour chart shows that we have seen one leg lower before finding support around the weekly pivot point and 1.0675 high. A bullish engulfing candle hints at a swing low, which paints a bullish bias for the euro session – as long as it can hold a break above 1.07. However, it remains unclear whether this is the end of a correction (and prices could break above last week’s high) or this is simply the ‘B’ part of an ABC correction. Should prices move lower, nest support levels reside around 1.0625 and 1.0600.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge