GBP/USD Recovery Stalls Amid Mixed U.S. Data but....The GBP/USD pair saw modest gains in early Friday trading after closing marginally lower on Thursday. Although there is potential for the pair to extend its recovery, our outlook remains firmly on the bearish side. Recent U.S. economic data, particularly inflation figures, has added to the complexity of market dynamics, impacting both the British pound and the U.S. dollar as traders assess the implications for future monetary policy.
U.S. Inflation and Labor Market Update
On Thursday, the U.S. Bureau of Labor Statistics released key inflation data, revealing a slight softening in the overall Consumer Price Index (CPI). Year-over-year, inflation ticked down to 2.4% in September, a small decline from August’s 2.5%. While this offered some relief to inflation hawks, the core CPI—excluding the more volatile food and energy prices—rose by 3.3% on an annual basis, higher than the market's forecast of 3.2%. On a monthly basis, core inflation increased by 0.3%, signaling persistent underlying price pressures.
Adding to the mix, the latest U.S. Initial Jobless Claims report showed a significant rise to 258,000 for the week ending October 5, up from 225,000 the previous week. This unexpected jump has revived concerns over a potential cooling in the labor market, complicating the outlook for future Federal Reserve policy. While rising jobless claims could increase the likelihood of a rate cut, persistent core inflation suggests that the Fed may hesitate to loosen monetary policy aggressively.
Technical Outlook: Bearish Sentiment Prevails
From a technical perspective, the Commitment of Traders (COT) report offers valuable insights into market positioning. The data shows that retail traders are aggressively long, while "smart money"—institutional investors—remains flat, indicating a lack of commitment to the bullish side. This divergence suggests that the broader market sentiment still leans bearish, even as the GBP/USD attempts to recover.
For now, we are holding off on opening any positions, instead waiting for a clearer opportunity to emerge. Our focus is on a possible price drop toward a key demand area, where we plan to evaluate the conditions for a potential long setup. This level would provide a more favorable risk-reward scenario to enter a position aligned with a recovery strategy.
Conclusion
While the GBP/USD has shown early signs of a potential recovery, the broader outlook remains bearish, with mixed U.S. economic data adding uncertainty to the market's direction. The softening inflation figure offers some hope for a dovish shift in the Fed's policy, but the persistently high core CPI and rising jobless claims complicate the situation. Until clearer signals emerge, our strategy is to wait for a deeper price drop toward a demand area to position ourselves for a potential rebound.
In the meantime, traders are advised to remain cautious, as volatile data releases and shifting market sentiment could lead to sudden swings in the GBP/USD pair in the coming sessions.
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USD/JPY: Fundamental Outlook and Next Target SetupDuring the Asian session, the USD/JPY pair broke below the crucial support level of 140.00. This decline was influenced by the movement of the US Dollar Index (DXY), which also experienced a correction, falling close to 104.11 after failing to maintain a recent two-month high at 104.31. The correction in the USD/JPY pair appears to be more significant compared to the correction in the USD index, indicating that the Japanese Yen has gained some strength.
In the Asian session, S&P500 futures continued to decline, reflecting an increase in risk aversion. However, on Thursday, US equities saw significant buying, driven by a strong recovery in the technology and financial sectors. Nevertheless, investors are becoming anxious as negotiations between White House officials and Republican leaders seem to be never-ending, which puts the US economy at risk of approaching a default situation.
Fears of a US economic default are leading to higher US Treasury yields, with the yields on 10-year government bonds surpassing 3.83%.
On Friday, there is expected to be significant activity in the USD Index with the release of US Durable Goods Orders data for April. The economic data is projected to contract by 1.0% compared to the previous reported expansion of 3.2%.
Federal Reserve policymakers are in support of not raising rates in June. Several economic indicators in the US economy are suggesting a need for the Federal Reserve (Fed) to pause its policy-tightening measures during the June monetary policy meeting. Labor market conditions in the US have started to cool down, the Consumer Price Index (CPI) is consistently decelerating, and businesses are anticipating a gloomy economic outlook. Reuters reported on Thursday that weekly emergency lending by the Federal Reserve to banks has reached its lowest level since the banking sector faced difficulties in March. This indicates that companies are using their retained earnings to meet their working capital requirements and avoid higher interest rates, or they are operating at reduced capacity.
Investors should take note of the minutes from the May Federal Open Market Committee (FOMC) meeting, which revealed that several Federal Reserve policymakers expressed uncertainty about further interest rate increases due to tight credit conditions imposed by regional US banks.
Expectations of the Fed maintaining its rate-hiking cycle in June solidified further after dovish comments from Boston Federal Reserve Bank President Susan Collins, who stated that the Federal Reserve "may be at or near" the time to pause interest rate increases. She added, "While inflation is still too high, there are some promising signs of moderation."
The Bank of Japan (BoJ) could make adjustments to its Yield Control Curve (YCC) strategy in the near future. BoJ Governor Kazuo Ueda stated on Thursday that they might tweak the YCC strategy if the balance between its benefits and costs were to change. The BoJ has also left room to potentially shorten the duration of bond yield targets from the current 10-year zone to a 5-year zone as part of the YCC.
Additionally, the Japanese Yen strengthened after the release of Tokyo CPI data for May, which showed a deceleration. Headline inflation eased from the previous release of 3.5% to 3.2%, falling short of expectations for an acceleration to 3.9%. However, core CPI, which excludes oil and food prices, decreased to 3.9% compared to estimates of 4.3%, but it remained higher than the previous release of 3.8%.
Our idea is to initiate a long setup at the 61.8% retracement level of the Fibonacci sequence, aiming to capitalize on a new long position aligned with the prevailing trend.
XAU/USD Bears Pressure Amid Rising Dollar and Yields - GOLDGold price bears are grappling with the impact of rising United States Treasury bond yields and the strength of the US Dollar. The ongoing impasse in US debt ceiling talks, coupled with hawkish sentiments expressed by Federal Reserve officials, has further bolstered Treasury bond yields and the US Dollar, placing downward pressure on XAU/USD. Traders are closely monitoring risk catalysts and upcoming second-tier US data for clearer indications of the Gold price's future direction.
Today, financial markets are experiencing a sense of risk aversion, with the US Dollar capitalizing on this sentiment. As a result, XAU/USD has declined throughout the day and is approaching its daily lows within the $1,956 price range. The downward pressure was fueled by comments made by United States House Speaker Kevin McCarthy following another round of talks with President Joe Biden regarding the extension of the debt ceiling. McCarthy highlighted the ongoing differences between Republicans and Democrats, emphasizing the Republican stance on spending cuts and opposition to tax hikes. However, he reassured that the US would not default and expressed optimism that a deal would eventually be reached.
In addition to the uncertainty surrounding the US debt ceiling, market sentiment is also influenced by speculations regarding the future monetary policy of the Federal Reserve. Traders are eagerly awaiting the release of the Minutes from the recent Federal Open Market Committee (FOMC) meeting, as it may provide insights into the central bank's stance. In recent days, policymakers have surprised investors with hawkish comments, suggesting the possibility of one or two more interest rate hikes before a potential pause.
These factors combined have contributed to the current environment, wherein Gold price bears are struggling amid rising Treasury bond yields and a strengthening US Dollar. Traders remain attentive to various risk drivers and upcoming economic data releases, seeking clearer signals for the future trajectory of the Gold price.