GBP/USD, Oil Forecast: Two Trades to Watch

GBP/USD slumps as UK inflation slows sharply

• UK CPI eases to 7.9% YoY, down from 8.7%
• Core and services inflation cool
• GBP/USD fall below 1.30

GBP/USD has fallen below 1.30 after UK inflation data cooled by more than expected and amid a stronger U.S. dollar.

UK CPI eased to 7.9% YoY in June, down from 8.7% in May and below forecasts of 8.2%. On a monthly basis inflation rose 0.1%, well down from 0.7% in May.

Core inflation also cooled by more than expected to 6.9%, down from 7.1%. On a monthly basis core CPI rose 0.2%, after rising 0.8% in May.

While inflation is still almost four times the BoE’s 2% target, it is trending in the right direction, which will bring some comfort to the BoE as it continues its struggles to tame inflation. Also, services inflation finally showed signs of cooling, taking some pressure off the BoE.

The BoE raised interest rates by 50 basis points in June to 5% and is expected to raise rates again in August. At a minimum, today’s data releases will cause the market to reconsider the possibility of a 50 basis point rate hike in August. The decision between 25 bps and 50 bps looks more finely balanced now.

As a result of today’s data, the market has reassessed the likelihood of a terminal rate above 6% and sees 6% as a more probable peak to the hiking cycle.

Meanwhile, the USD is edging higher off a 15-month low after US retail sales data showed consumers were still spending. Retail sales rose 0.2% MoM in June, less than the 0.5% expected, but May’s figure was upwardly revised to 0.5%. Furthermore, retail sales control jumped 0.6%, defying forecasts of a fall of -0.3%.

Looking ahead, US housing stats will be in focus with building permits and housing starts due to be released.

GBP/USD forecast – technical analysis

GBP/USD is rebounding lower from resistance at 1.3140, falling below 1.30 and bringing the RSI out of overbought territory.

Support can be seen at 1.2930, today’s low, and the multi-month rising trendline, with a break below here opening the door to 1.29 round number and 1.2850, the June high.

Meanwhile, on the upside, buyers will look to retake the 1.30 psychological level ahead of 1.3140, the 2023 high.

Oil eases from 77.00 ahead of inventory data

• Growth concerns put pressure on oil prices
• EIA data is due later after API showed a small draw
• Oil holds above $75.00

After gaining over 2% yesterday, WTI crude oil is falling from 76.00 amid uncertainty in oil markets. Investors weigh up economic concerns and tightening supplies.

Concerns over the health of US and European economies combined with weaker-than-expected Chinese GDP growth in the second quarter keep downward pressure on oil prices.

Meanwhile, hopes that the Federal Reserve will hike rates just once more this year and a pledge from China that it will introduce more policies to restore consumption.

On the supply side, Russia’s crude oil exports show signs of declining for a second straight week and are seen dropping to a 4-month low in the four weeks to July 16.

API oil inventory data offered some support to prices, with stockpiles seeing a draw of 797,000 barrels. US gasoline inventories also fell last week.

Attention will now turn to EIA data later today, which, if it also shows a draw, could support oil prices.

Oil forecast – technical analysis

After rebounding lower from the falling trendline resistance, oil found support just above the 100 sma at 73.80. The subsequent move higher ran lost momentum at 76.00. Buyers will need to rise above 76.00 and the rising trendline resistance at 76.60. A break out above here is confirmed with a rise above 77.30, the July high.

Support can be seen as 75.00 round number and 73.80, which has limited losses this week. A fall below here exposes the 100 sma at 73.65, creating a lower low.