GBP/USD, FTSE 100 in focus for UK inflation, Jerome Powell testimony

Asian Indices:

Australia's ASX 200 index fell by -20.7 points (-0.28%) and currently trades at 7,337.10
Japan's Nikkei 225 index has risen by 27.79 points (0.08%) and currently trades at 33,416.70
Hong Kong's Hang Seng index has fallen by -384.03 points (-1.96%) and currently trades at 19,223.05
China's A50 Index has fallen by -27.85 points (-0.22%) and currently trades at 12,746.48

UK and Europe:

UK's FTSE 100 futures are currently up 5 points (0.07%), the cash market is currently estimated to open at 7,574.31
Euro STOXX 50 futures are currently up 9 points (0.21%), the cash market is currently estimated to open at 4,352.14
Germany's DAX futures are currently up 32 points (0.2%), the cash market is currently estimated to open at 16,143.32

US Futures:

DJI futures are currently down -8 points (-0.02%)
S&P 500 futures are currently down -1 points (-0.02%)
Nasdaq 100 futures are currently down -5.75 points (-0.04%)

Volatility has been typically quiet ahead of a key Jerome Powell speech who is due to testify to the House today and Senate tomorrow
There was no surprises within the BOJ minutes which showed members continued to favour ultra-loose policies (so any cancellation of YC remains very much on the backburner)
This could allow USD/JPY to break top new cycle highs if Powell delivers hawkish comments
President Biden has suggested that President Xi desires a resumption of relations with the US, although also labelled him a dictator
US futures markets are holding steady in tight ranges after Wall Street retraced lower for a second day, presumably as investors lightened up their loads after a solid run, ahead of Powell’s speech
And that mean equity traders on the side line may be looking out for any dovish clues (however small) to rejoin that trend, in hopes of a lower terminal rate (and not the 50bp of hikes the dot plot suggested

UK inflation in focus at 07:00 BST

The UK inflation report will be a key focus from 07:00 BST, as it could directly impact market pricing for the BOE (Bank of England) on the eve of their next monetary policy meeting. A 25bp hike tomorrow is effectively a given, so today’s inflation data is really about how many more hikes are to be expected, and for how long(er) they will remain high.

The BOE’s base rate currently sits at 4.5% whilst the 1-year OIS (overnight index swap) sits at 5.64%, which means money markets have fully priced in another 100bp of hikes with the potential for a fifth. With wages rising and employment tight as ever, the risks to inflation remain to the upside – even if input costs have been falling. And a hot inflation report today could simply increase expectations of higher-for-long rates, support GBP and weigh further on the FTSE 100.

Jerome Powell is set to testify to congress

The Fed have just paused interest rates, and now Fed Chair Jerome Powell will have to field questions from congress on that decision. Today he will speak to the House Financial Services Committee, then tomorrow the Senate Banking Committee. As the second performance is usually a repeat of this first, today’s show is the main event. His introductory remarks are usually released which means traders an algos and quickly scan the comments and potentially move markets, before he will then lock horns with congress. Inflation remains too high and we see that housing data is making a strong comeback – which is itself inflationary. And that means there is a chance we could have a hawkish tone overall and see the US dollar bid. Of course, if he surprises with dovish remarks, this could weigh on the US dollar and send GBP/USD notably higher should UK inflation surprise to the upside.

GBP/USD spot

We saw strong buying volumes at the 1.2713 low yesterday, before prices recouped around half of the day’s losses heading into the NY close. Intraday support sits around 1.274 and 1.2756, and momentum is trying to turn higher after a tight consolidation around 1.2760 early Asia. Overnight Implied volatility suggests a move of around 66pips, which could see GBP/USD reclaim the 1.2800 and break above Friday’s high ahead of Jerome Powell’s meeting, assuming we’re not presented with a surprisingly soft inflation report.

FTSE 100 daily chart:

The FTSE 100 closed at a 5-day low yesterday, which was its second close beneath its 200-day EMA and monthly pivot point. The index also printed a prominent bearish hammer on Friday, which met resistance at the bearish trendline to suggest the swing high is in place. The RSI (14) remains below 50 and is now moving lower with prices. We’re now looking for a break of the 7454.5 low, and move towards the 7400 – 7445 zone.

View the full economic calendar

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

StoneX Europe Limited is registered with the German Federal Financial Supervisory Authority (BaFin). BaFin registration ID: 10160255

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

The statistical data and the awards received refer to the Global FOREX.com brand.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Additionally, StoneX Europe Ltd is allowed to provide Investment and Ancillary Services to the following non-EU jurisdiction: Switzerland.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

Tied Agent Information: KQ Markets Europe Ltd with Company No. HE427857.
Address: Athalassas 62, Mezzanine, Strovolos, Nicosia Cyprus.
Services Provided: Reception and Transmission of Orders.
Commencement Date: 06/12/2022
Website: KQ Markets - CFD Trading | KQ Markets

We may pay inducements, such as commissions or fees, to affiliates or third-party introducers for referring clients to us. This is in line with regulatory guidelines and fully disclosed where applicable.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.