Pound Gets Pummelled
Another week comes to an end in markets and we’re inching our way closer and close to the end of the year. Bonfire night might have been last week but that doesn’t mean there wasn’t any fireworks on the chart this week. Chatting with traders ahead of the weekend it seems the big move catching everybody’s attention was the breakout higher in the US Dollar. In the currency space, this move was expressed best via the almost 2% drop in GBPUSD (almost 300 pips!). So, let’s take a look at what caused the move and, as ever if you caught it? Well done! If you missed it? Better luck next week!
What Caused the Move?
Firm Inflation Beat
The breakout in the Dollar this week was fuelled mainly by a set of better-than-expected inflation figures for October. Ahead of the release on Wednesday the market had relatively subdued expectations for the latest set of price data. Headline inflation was expected to have risen to 0.6% from 0.5% prior while core inflation was expected to have risen to 0.4% from 0.2% prior. However, the data came in hot at 0.9% and 0.6% respectively, beating forecasts on both readings.
Upgraded Fed Tightening Expectations
As a result of the firm beat, USD saw strong demand as traders rushed to re-price their near term Fed tightening expectations. On the back of the November tapering announcement the Fed made it clear that it still judges the current inflation spike as likely to subside, despite it running hotter and for longer than expected. However, in light of a set of yet further stronger-than-expected data, the market is clearly focusing on upside risks and the likelihood that the Fed is forced to adjust its view, keeping the near-term outlook bullish for USD.
UK Political Uncertainty
A stronger USD was perfectly poised to take advantage of the weaker Pound this week. GBP has come under pressure amidst the ongoing political uncertainty gripping the nation as a result of the controversy around alleged government corruption which is damaging the PM’s support in opinion polls and raising the risk of a change in leadership in the near term. With the situation still unfolding, GBP looks likely to remain pressured. So, that’s the fundamental picture, now lets take a look at the technical landscape.
Technical View
GBPUSD
The breakdown in GBPUSD this week has seen price trading below the recent 1.3461 lows as price continues to trade down towards the lower channel support line. Price is currently sitting on support at the 1.3349 level though, with MACD and RSI both firmly bearish, the focus is on a continuation lower towards the 1.32 level next.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.