Two trades to watch: GBP/USD, Gold

GBP/USD rises post jobs data & ahead of US inflation figures. Gold rises ahead of US inflation data.

Gold 1

GBP/USD rises post jobs data & ahead of US inflation figures

GBP/USD is heading higher towards 1.23 following the UK jobs data. While unemployment ticked higher to 3.7%, up from 3.6%, UK wage growth excluding bonuses also accelerated.

Wage growth, excluding bonuses where is 6.1% in October, up from 5.8%. The data has solidified expectations for a 50 basis point rate hike this week from the BoE.

The BoE will be watching pay growth closely as it tries to assess the risks of longer-term inflation problems. With UK wages rising faster than up almost anytime in the past 20 years, pressure will remain on the BoE to continue hiking interest rates despite a deteriorating economic outlook.

The data comes after UK GDP rebounded by 0.5% QoQ in October. But as Finance Secretary Jeremy Hunt warned that UK economic growth is expected to get worse before it gets better.

Looking ahead, attention will now turn to US inflation data which is expected to cool to 7.3% from 7.7%. Cooler-than-expected inflation could pull on the US dollar boosting GBP/USD.

Where next for GBP/USD?

GBP/USD trades within an ascending channel since the end of September. The price has risen above the 50, 100, and 200 sma as well as breaking out above hey multi-month descending channel dating back to early May.  The RSI supports further upside while it remains out of territory.

Buyers need to rise above 1.2350, the December high to extend the bullish trend to 1.2660, the June high, and the rising channel’s upper band.

Meanwhile, Support can be seen at 1.2120 the 100 & 200 sma, with a break opening the door to 120 psychological level.



Gold rises ahead of US inflation data.

The price of gold is resuming its uptrend after posting its largest loss in a week on Monday. While bulls are pushing the price higher ahead of US inflation data, the cautious mood keeps gains limited to around 1785.

US CPI for November is expected to cool to 7.3%, down from 7.7%YoY in October. Meanwhile, core inflation is expected to drop 6% from 6.3%.

Hotter-than-expected CPI data could fuel bets of a more aggressive Federal Reserve. While the data is unlikely to deter the Fed from a 50 bases point rate hike this week, it could prompt federal reserve policymakers to revise the Fed fund terminal rate higher. Meanwhile, cooler-than-forecast inflation could fuel dovish Fed bets and boost non-yielding gold.

In addition to the macro environment, an upbeat outlook by Goldman Sachs towards gold is also underpinning the precious metal. Analysts at the investment bank consider that gold will outperform the highly volatile Bitcoin over the long term.

Separately, news that seizures of smuggled gold in India have reached a three-year high after the government increased import duty on the precious metal could add pressure to the supply side, boosting gold.

Where next for gold prices?

Gold prices have been trading within a rising wedge, usually a bearish reversal pattern.

After failing to rise above 1800, the price has fallen below the 200 sma and the rising trendline support. Still, failure to break below yesterday’s low of 1781 combined with the rising RSI keeps buyers hopeful of further upside.

Buyers need to rise back above 1790 200 sma to make another attempt on 1800. A rise above here is needed to create a high and bring 1820, the rising trendline resistance into focus.

Failure to retake the 200 sma could see sellers test 1781, the weekly low, to expose the 100 sma at 1760, negating the near term up trend.




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