Chapter 36 09/12 GBPUSD: Go Short at the Highs as All Indicators Are in the Negative Range
Abstract: In the three months to July, the number of employed people in the UK has decreased by 207,000, and the number of job vacancies has decreased by two-thirds, returning to the pre-pandemic level. However, salary growth is still at an eye-popping level, which means that the Bank of England (BOE) will continue to raise interest rates next week.
Fundamentals
In the three months to July, the wage growth in the UK remained at a record high, which is a sign that inflation continues to run at a high level, which will put pressure on the BOE to raise interest rates again. According to the published data, the average income after bonus deduction in the UK increased by 7.8% compared with the same period of last year, reaching the fastest growth rate since the data was compiled in 2001. A previous survey showed that the market had expected this data. Given the pressure caused by the highest borrowing cost since 2008, the labor market began to cool down, but this wage data still appeared. The unemployment rate rose for the third consecutive month to 4.3%. Job vacancies continue to decline. However, this is unlikely to prevent the BOE from raising interest rates for the 15th time in a row later this month, as it is trying to control inflation above its target.
After the release of employment data in the UK in August, investors are still unwilling to fully digest the expectations of the BOE's new round of tightening policy next week, and the evidence we have just obtained shows that the BOE should go through the last mile of this pricing without hesitation. Investors believe that the possibility of the BOE raising interest rates by 25 basis points on September 21st is about 80%. As time goes on, they are bound to increase the possibility of pricing this result.
At present, the market thinks that there is still a lot of data to be analyzed before the BOE holds a meeting, but considering the strong wage growth in the UK economy, next week's inflation data is unlikely to depict a completely different trend.
Sarah Breeden, the incoming deputy governor of the BOE, shared her economic forecast at today's parliamentary finance committee approval hearing. Breeden expressed her expectation that the inflation rate will approach the 2% target within two years, which is based on the premise outlined in the BOE's August forecast.
Breeden agreed with the Monetary Policy Committee that the inflation risk associated with the August forecast was "on the upward side". She admitted that "the second-round impact of price and wage setting is stronger than previously expected." When it comes to growth and unemployment, Breeden sees a path full of "balanced risks", which may swing in either direction.
Technical Analysis
Since testing a 15-month high of 1.3142, the GBPUSD has been forming a descending structure with declining highs. Although it has recently rebounded from a three-month low in a short-term timeframe, the short-term oscillation index still points downward because the relative strength index and MACD are both in negative ranges, and it is expected that the GBPUSD will continue to be in an oscillating downward structure.
In its short-term timeframe, if selling interest strengthens, the GBPUSD could continue to test the recent resistance at 1.2548 before continuing lower to the recent support at 1.2445, which served as resistance in January and also coincides with the 200-day SMA. A break below this level could see prices fall towards the May bottom at the 1.2308 range before a sharp rebound.
On the other hand, if the recent rally extends, the bulls could break above the near-term resistance at 1.2548, which has served as both support and resistance over the past month. A break above this range could disrupt the recent descending structure and thus lengthen the downtrend cycle.
Overall, the corrective pullback in GBPUSD continues to lose momentum, but it is also too early to talk about a reversal. It is recommended to go short at the highs.
Trading Recommendations
Trading direction: Short
Entry price: 1.2520
Target price: 1.2350
Stop loss: 1.2685
Deadline: 2023-09-26 23:55:00
Support: 1.2480, 1.2450, 1.2400
Resistance: 1.2580, 1.2655, 1.2685
