GBP/USD, Oil Forecast: Two Trades to Watch

GBP/USD falls to a fresh 6 month low with PMI data due

• UK services PMI is expected to fall to 47.2 in September
• US ISM services PMI & ADP payrolls are due
• GBP/USD falls towards 1.20

The US dollar is falling for a third straight session UN persistent U.S. dollar strength and as investors look ahead to a busy day on the economic calendar.

First up, UK services PMI data is expected to show a sharp contraction, falling to 47.2 in September, down from 49.5 in August, marking the sharpest slowdown as customers rein in spending due to higher borrowing costs and subdued business confidence. The data adds to mounting evidence that the UK economy contracted in the third quarter and could be heading for a recession in the second half of the year.

With inflation cooling and concerns rising over a prolonged economic slowdown, the market is convinced that the BoE has reached the end of its hiking cycle, which is keeping pressure on the pound.

This is in sharp contrast to the US dollar, where a resilient US economy and hawkish Fed comments lifted the 10-year treasury yield to a 16-year high and has fueled bets that the Federal Reserve will keep interest rates higher for longer.

Data yesterday showed that the number of job openings in the US jumped in August to 9.61 million, well ahead of the 8.8 million expected.

The latest jobs data shows that the market is withstanding the Federal Reserve's aggressive hiking cycle. This matters because the labour market is closely monitored by the Fed as it tries to fight inflation.

Attention will now turn to the ADP private payroll report, which is expected to show that job creation eased to 153,000 in September, down from 177,000. A higher-than-expected increase could support wage growth and consumption and a more hawkish Federal Reserve

However, ISM services PMI will also be in focus and is expected to ease slightly to 53.6 from 54.5. The services sector in the US accounts for around 75% of the US economy, so stronger-than-expected growth could add to the higher rates for longer narrative.

GBP/USD forecast – technical analysis

GBP/USD continues to trend lower to a new 2023 low. The 50 sma has crossed below the 100 sma, and the 20 sma has crossed below the 200 sma in bearish signals. However, the RSI is deeply oversold so sellers should be cautious.

Bears could now target 1.20, the psychological level, for 1.1915, the February’22 low, before bringing 1.1859, the March low, into focus.

Buyers could look to retake 1.21, last week’s low, to be able to extend gains towards 2.2180, last week’s high.

Oil resumes its decline ahead of the OPEC+ meeting

• Oil trades around 5% lower since last Thursday on demand worries & USD strength
• OPEC+ is not expected to adjust output levels
• Oil tests 87.80 support

Oil prices are resuming their decline amid concerns over high interest rates for longer, hurting the demand outlook and as investors look ahead to the OPEC meeting.

Oil prices have dropped around 5% since Thursday on fears over the impact that higher US interest rates will have on growth, reducing oil demand. These concerns overshadowed worries about tight supply, which had driven oil prices sharply higher since June.

Upbeat data from the US has prompted a sharp rise in treasury yield and boosted expectations that the Federal Reserve will keep interest rates higher for longer. Not only could this slow down economic growth, but it's also caused a sharp rise in the US dollar, which makes oil more expensive for holders of other currencies.

Looking ahead to the OPEC meeting, the group is expected to keep output policy unchanged after Saudi Arabia and Russia extended production cuts to the end of the year.

Saudi Arabia is expected to raise its November final selling price of our light crude to Asia for a fifth straight month as crude supplies are expected to remain tight.

In addition to the OPEC meeting, EIA inventory data will also be closely watched. According to API data, crude stockpiles fell by 4.2 million barrels in the week ending Sept 29. Analysts are expecting crude oil inventories to fall by around 500k.

Oil forecast – technical analysis

Oil ran into resistance at 94.63 and rebounded lower, breaking below the 20 sma. The RSI is neutral, giving away few clues. The price is testing 87.80 support, last week’s low. A break below here and 87.15, yesterday’s low exposes the 50 sma at 84.70, which is also the August high.

Should support at 87.80 hold, buyers will need to rise above the 20 sma at 89.45 to extend gains towards 92.40 the September 19 high, before bringing 94.65 back into play.