It has been another busy week for traders in the FX market, and it looks like it will go down to the wire again on the final trading day of the week, with crucial US inflation data released in the last session. Despite the market focusing slightly more on the US employment situation in recent weeks, there is no doubt that if inflation numbers start to deviate from expectations, we will see changes in Fed forecasts.
The expectation is for the headline number to show another 0.2% month-on-month increase. If this is the case, market pricing for another 75 basis points of cuts this year will not change significantly. However, the risk is that we may start to see some variation in the data, which could be especially true in the coming months as the Fed’s 50 basis point September cut filters through. If the result deviates from expectations, expect some sharp moves in the dollar.
Cable is currently trading at annual highs and could therefore be more prone to volatility than some of the other major currencies. A slowdown in the data could lead to more cuts being priced into the market and the dollar taking a further hit, which would push Cable to new highs, with the next target for long-term traders likely being the key psychological level at 1.4000 if the current trend continues. A stronger result would probably result in a sharper move, with Cable dropping back into recent ranges as the market anticipates a slower pace of rate cuts.
Resistance 2: 1.4000 – Psychological Level
Resistance 1: 1.3434 – Annual High and Trendline Resistance
Support 1: 1.3000 – Psychological Level and September Low
Support 2: 1.2765 – 200-Day Moving Average
