GBP/USD, Oil Forecast: Two trades to watch

GBP/USD rises after sticky UK inflation

• UK CPI holds at 6.7% YoY in September vs. 6.6% exp.
• US Fed speakers in focus after strong US retail sales data
• GBP/USD tests 20 sma resistance

The pound is pushing higher against a slightly softer U.S. dollar after UK inflation stayed higher than expected in September.

The latest consumer price index rose 6.7% in September, stronger than expected and in line with August's CPI reading, while defying expectations of a fall to 6.6%.

The data comes after UK wage growth data showed signs of the labour market cooling. However, elevated oil prices raise the prospect of inflation remaining sticky. Higher prices at the pumps for motorists were the biggest influence in keeping inflation steady.

The data is unlikely to change the immediate outlook for interest rates after 14 consecutive hikes from the Bank of England have started to slow the economy. Bank of England officials will be weighing up whether to hike rates again to return inflation to the 2% target when they meet on November 2nd.

Money markets are pricing in a 30% probability of a 25 basis point rate hike in November and a 60% probability of a rate hike by early next year.

Meanwhile, the US dollar is edging lower despite upbeat U.S. economic data yesterday. Both US retail sales and industrial production came in stronger than expected, raising questions over whether the Federal Reserve's next move.

While recent Fed officials have suggested that the US central bank may not need to raise interest rates again this year, data continues to show that the economy is more resilient than expected, which could prompt a more hawkish stance from the Federal Reserve.

Attention will turn towards U.S. housing permit data and a series of Fed officials due to speak and could shed more light on the Fed's next move.

Meanwhile, attention will also remain on developments in the Middle East after a blast at Gaza hospital, which comes ahead of US President Joe Biden’s visit to Israel.

GBP/USD forecast – technical analysis

After testing support at 1.2135 again yesterday, the price has pushed higher and is attempting to push above the 20 sma at 1.22, a level that has capped the pair so far this week.

A rise above 1.22 opens the door to the falling trendline resistance at 1.23 and the October high of 1.2340.

Sellers could be encouraged by the 50 sma crossing below the 200 sma. Should sellers successfully defend the 20 sma, the price could fall back to test the weekly low of 1.2135, bringing 1.2040 into target.

Oil rises as Israel conflict escalates

• Tension in the Middle East escalate ahead of Biden’s visit
• China’s Q3 GDP grows 1.3% QoQ up from 0.5%
• Oil rises to a 2-week high

Oil prices have jumped 2% higher as tensions escalated in the Middle East and after stronger than expected data from China.

Oil markets have reacted to a blast at the Gaza City hospital, threatening to further escalate the Middle East conflict. Jordan also cancelled its summit with U.S. President Biden, reducing the likelihood of a diplomatic solution to the Israel-Hamas conflict.

Oil markets are increasingly nervous of a ground offensive in Gaza, and as long as tensions are elevated, and the threat of the conflict expanding exists, oil prices are likely to remain supported.

Meanwhile, China's economy growing faster than expected in the third quarter has booted the demand outlook for oil.

China's GDP rose to 1.3% QoQ, up from  0.5% in the April to June period. Data also showed that China's oil refinery throughput in September rose to a record daily rate, up 12% from a year earlier. Figures suggest that stimulus support from Beijing is helping the Chinese economy target 5% growth this year, However, concerns over Chinese real estate remain.

Separately, US crude stockpiles fell by 4.4 million barrels in the week ending October the 13th, much steeper than the 300K drawl forecast. Attention will now turn to the EIA stockpile data.

Oil forecast – technical analysis

Oil has extended its rebound from the October low of 80.70, rising above the 20 and 50 sma, which, together with the bullish crossover appearing on the MACD is keeping buyers hopeful of further upside.

Buyers are testing the multi-month rising trendline resistance at 87.80, with a rise above here bring 90.00 the psychological level into focus.

On the flip side, the longer upper wick on today’s candle suggests that there wasn’t much demand at the higher levels, which could encourage sellers to break below the 20 sma towards to test 84.40 the weekly low and 82.00 the October low.