FUNDAMENTAL OVERVIEW
USD:
The US dollar weakened across the board earlier this week as oil prices fell following G7 discussion about emergency oil reserves release. The move accelerated after Trump told CBS that “the war could be over soon.” Traders began unwinding some of their positions, as expectations of a quick resolution led markets to dial back hawkish interest-rate bets, putting pressure on the greenback.
However, the trend reversed after reports that US intelligence had detected signs Iran might be deploying mines in the Strait of Hormuz, pushing markets back into risk-off mode. Oil prices started rising again, and hawkish rate expectations quickly returned.
Yesterday, Trump told Axios that there is practically nothing left to target in Iran and that the war will end soon. Unfortunately, markets no longer seem to be buying the “war ending soon” narrative. His comments were largely ignored, as traders now want to see a clear and definitive end to the conflict. Until that happens, the US dollar is likely to remain supported.
GBP:
On the GBP side, traders have erased all expectations of rate cuts and are now pricing in around a 40% chance of a rate hike by year-end. A similar shift has taken place across several other central banks, as higher oil prices have led markets to anticipate stronger inflation in the coming months and less room for policymakers to ease rates.
On the data front, there hasn’t been much to drive markets in the meantime. Tomorrow we’ll get the UK’s monthly GDP report, but it will likely be ignored since all the pre-war data is old news.
GBPUSD TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that GBPUSD rejected the major downward trendline and started falling again as US dollar bids returned. The sellers will likely continue to lean on the trendline with a defined risk above it to keep pushing into new lows, while the buyers will want to see the price breaking higher to pile in for a rally into the 1.36 handle next.
GBPUSD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we have an upward trendline that could act as support. From a risk management perspective, the buyers will have a better risk to reward setup around the trendline to position for a break above the major downward trendline and target new highs. The sellers, on the other hand, will look for a break below the upward trendline to increase the bearish bets into new lows.
GBPUSD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we have a minor downward trendline defining the bearish momentum on this timeframe. The sellers will likely continue to lean on the trendline with a defined risk above it to keep pushing into new lows, while the buyers will look for a break higher to start targeting a break above the major downward trendline. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we get the latest US Jobless Claims figures. Tomorrow, we conclude the week with the US PCE price index, the University of Michigan Consumer Sentiment survey and the Job Openings data. As a reminder, the market focus right now is solely on the US-Iran war, so the data might not matter much.
