In the near term and according to the performance on the hourly chart, it seems that the GBP/USD currency pair is trading within the formation of a weak ascending channel. 

The losses of the GBP/USD pair during last week’s trades were the strongest as they fell to the lowest support level of 1.1717 since the collapse of the markets at the height of the 2020 Corona epidemic.

At the end of the week, the pair tried to recover to the resistance area of ​​1.1900, but with Jerome Powell’s confirmation of moving forward in raising the American interest rate to contain the standard inflation in the United States, he brought more strong momentum to the American dollar and therefore the sterling dollar pair moved towards the support level of 1.1735 , closing around it.

The Pound Sterling quickly gave up its gains against the dollar after Federal Reserve Chairman Jerome Powell said businesses and households would face an increasing struggle as the bank will raise US interest rates further to lower US inflation. He said this in opening remarks at the Jackson Hole Symposium hosted by the Federal Reserve Bank in Kansas City.

“July’s increase in the target range was the second increase of 75 basis points in the largest number of meetings, and I said then that another large, unusual increase might be appropriate at our next meeting,” told Powell to a gathering of central bank governors

And much of the widely anticipated speech focused on three lessons for policymakers to draw from the Fed’s experience with inflation in the 1970s and 1980s, but not before Powell said continued increases in interest rates and the passage of time would be necessary to reduce inflation.

“The restoration of price stability will take some time and requires the strong use of our tools to achieve a better balance between supply and demand. Lowering inflation will likely require a sustained period of flat growth. Furthermore, it is very likely that there will be some decline in the labor market,” continued Powell, “While high interest rates, slow growth, and soft labor market conditions will lead to lower inflation, they will also cause some pain for families and businesses. These are the unfortunate costs of reducing inflation. But the failure to restore price stability will mean much more,” he added.

The  Federal Reserve chairman pointed to clear signs of a slowdown in the US economy in recent months, but was also clear that this was unlikely to sway the Fed from its view  that US interest rates needed to rise to the restrictive level and remain at approximately four percent for an extended period to bring inflation back to the 2 percent target.

“At some point, as the monetary policy stance tightens, it will likely become appropriate to slow down the rate of increases. And it is likely that restoring price stability will require maintaining a restrictive political stance for some time,” said Powell, “The latest individual forecasts from September showed that the average federal funds rate is slightly below 4 percent until the end of 2023. Participants will update their forecasts at the September meeting,” he added.

A wide range of American data in recent weeks has indicated that the economic slowdown in the first half is likely to extend into the third quarter, which could mean there is a risk of a third contraction in a row and the continuation of the “technical recession” in the United States. The S&P Global PMI recently indicated that the recession deepened in the manufacturing and services sectors in August, continuing to contradict the equivalent Institute for Supply Management survey message.

 “While recent economic data has been mixed, in my view, our economy continues to show strong fundamental strength,” continued Powell, “The labor market is particularly strong, but it is clearly unbalanced, as the demand for workers greatly exceeds the supply of available labor. And inflation exceeds 2 percent, and the high inflation continued to spread through the economy,” he added.

Expectations for the GPB/USD:

• In the near term and according to the performance on the hourly chart, it seems that the GBP/USD currency pair is trading within the formation of a weak ascending channel. This indicates a slight upward trend in the short term in market sentiment.
• Therefore, the bulls will look to ride the recent high towards 1.1900 or higher to 1.1945. On the other hand, the bearish speculators will target potential downside profits at around 1.1812 or lower at 1.1769.
• In the long term and according to the performance on the daily chart, it seems that the GBP/USD currency pair is trading within the formation of a descending channel. This points to a significant long-term downward wound in market sentiment.
• Therefore, the bearish speculators will look to extend the current lows towards 1.1725 or lower to 1.1516. On the other hand, the bulls will target long-term profits at around 1.2028 or higher at 1.2230.

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Gold futures turned strongly positive, stunning many traders and analysts, as higher-than-expected US inflation sent investors to the safe-haven assets. The yellow metal continues to hold, despite the tightening of monetary policy by global central banks. With inflation raging across the US economy, the question now is: Will gold prices touch the top of $1,900?

The price of gold rose to the resistance level of $ 1878 an ounce at the beginning of this important week’s trading after the top of $ 1876 an ounce on Friday. It was affected by the movement of the gold price to achieve weekly gains by 0.35%, in addition to its rise since the beginning of the year 2022 to date by about 1.6%.

In the same performance, the price of silver, the sister commodity to gold, also erased its losses after the sharp US inflation report. Silver rose to $21.855 an ounce. Accordingly, the price of the white metal is preparing for a weekly decline of 0.4%, which raises its loss since the start of the year 2022 to date to nearly 6.5%.

It was all about the US CPI report for May as the numbers came in higher than economists had expected, indicating that inflation has not peaked yet. According to the official announcement, in May, the annual inflation rate in the United States of America rose to 8.6%, higher than economists’ expectations of 8.3%. This was up from 8.3% in April. Core inflation, which strips out the volatile food and energy sectors, rose 6% year over year, slightly above market expectations of 5.9%.

On a monthly basis, the US Consumer Price Index (CPI) rose 1%, while the core CPI jumped 0.6%. Everything was up across the board, led by food (+10.1%), energy (+34.6%), used cars and trucks (+16.1%) and new vehicles (+12.6%). But clothing also increased by 5%, while shelter increased by 5.5%.

All eyes will now be on the Producer Price Index (PPI) this week as economists begin an annual reading of 10.9%, which will be slightly lower than the 11% reading in April. However, investors may be concerned that producer prices may again top market estimates.

Meanwhile, fiery inflation data has prompted financial markets to raise the odds that the Federal Reserve will raise US interest rates by 75 basis points at this week’s Federal Open Market Committee (FOMC) policy meeting, higher than the initial forecast of 50 basis points.

Last Friday the US Treasury market bonds jumped, with the benchmark 10-year yield rising 10.8 basis points. Investors are watching the rise of more than 18 basis points in the two-year bond, which is also nearing the 10-year mark, which could lead to a yield curve inversion. This is one of the main indicators of stagnation.

The gold market is usually sensitive to higher rates and returns because it raises the opportunity cost of holding non-returning bullion.

The strength of the US dollar limited gold’s gains as the US Dollar Index (DXY) advanced to 104.08 and the index, which measures the US currency against a basket of major currencies, will measure about 2% weekly support, adding to its 2022 year-to-date gains of about 8.5%. In general, a stronger profit is bad for dollar-priced commodities because it makes them more expensive to buy for foreign investors.

In other metals markets, copper futures fell 1.78% to $4.303 a pound. Platinum futures fell to $968.70 an ounce. Palladium futures were down 1.18% to $1,893.00 an ounce.

According to gold technical analysis: The bulls’ control over the gold market has increased in strength and has often been noted and recommended to buy gold from every descending level. This is despite the strong interest of global central banks towards raising interest. The gold market is still receiving momentum from other factors, most notably global geopolitical tensions led by the Russian war and the re-emergence of global concern about the Corona pandemic, which threatens the future of global economic recovery. The bulls’ move towards the $1882 resistance will support the move towards the next psychological resistance, $1900 an ounce.

A real change in the general direction of the gold price will not occur without moving towards the support levels of 1838 and 1820 dollars, respectively. So far, I still prefer buying gold from every bearish level. The gold market, like the rest of the global markets, is on an important date this week with the monetary policy announcements of a group of global central banks led by the US Federal Reserve.

Germany, UK considering further lockdowns; Eurozone economy improving, though worse than expected.

According to Germany’s Federal Statistical Office, retail sales rose by 5.6% (annually) in November, higher than expectations of 3.9% but lower than the previous month’s 8.6% rise. In monthly terms, retail sales rose 1.9% in November, lower than October’s 2.6% rise but significantly higher than forecasts of a 2% decline.

The Federal Statistical Office linked the expansion with a surge in online sales and home improvement spending.

Retail sales are set to grow by 4% this year, despite the disastrous effects of the pandemic on economic activity. This is good news for Germany, which currently struggles with the spread of the virus.

In order to curb the spread of the virus, the German government has been considering extending the national lockdown by three weeks. The majority of Germany’s states already agreed to impose this measure, which is set to be announced on Tuesday after a meeting with Chancellor Angela Merkel.

Since mid-December, schools, stores and services have been closed due to COVID-19, which has infected 1,796,216 individuals and killed 35,632. With the new measures, restrictions would end on January 31^st instead of January 10^th.

According to recently released data, employment ended a 14-year gaining streak as it fell by 1.1% year-on-year, the sharpest decline since 1993. Markit Economics reported a slower expansion in the manufacturing sector in December, as the Manufacturing PMI stood at 58.3 after being at 58.6 in the previous month.

German Chancellor Angela Merkel recently concluded the Comprehensive Agreement on Investment with China, which would further improve the economic relationship between both countries. The decision was made despite President-Elect Joe Biden’s requests, as the agreement would make it harder to align the European Union’s policies with those of the United States.

Economic Calendar

With the New Year holiday last week, there were no data regarding the European economy.

This week, Markit Economics reported that the European Union’s manufacturing sector expanded less than expected, with a Manufacturing PMI reading of 55.2, less than the previous month’s 55.5. Predictions were that it would remain unchanged.

Euro Recovers

So far this week, the euro has gained 1.21% against the US dollar, breaking a two-week losing streak. It also managed to recover against the pound sterling, advancing by 1.88 percent and breaking a three-week losing streak.

The euro’s recent gains can be linked to the UK’s decision to impose another lockdown due to the uncontrolled spread of a recently identified strain of COVID-19. This fall offset sterling’s gains from a post-Brexit trade deal.

“Sterling lost ground against the euro yesterday as the market reacted poorly to the prospect of a third national lockdown in England,” explained an analyst at Caxton FX. “With Brexit now out of the way, the economic backdrop will be a more significant driver of the pound both today and in the coming months.”

The European Central Bank, which is now amid an ongoing policy review, provided additional stimulus in December, expanding its emergency bond purchases program by 500 billion euro. ECB Governing Council member Pablo Hernandez de Cos called the Bank’s governing board to explore other options that could help reduce the volume of bond purchases.

“I think yield curve control is an option worth exploring,” de Cos commented. “The experience of these central banks suggests that, if sufficiently credible, yield curve control allows the central bank to achieve a yield curve configuration with a lower amount of actual purchases, hence enhancing efficiency.”

Eurozone Economy Worse Than Expected, Though Improving

Since our last report, the Eurozone growth data has remained unchanged. Inflation remained in line with analysts’ expectations, though way below the ECB’s target. The latest unemployment level signals a slight decline in the labor market at 8.4% after being at 8.3% in September.

According to a poll of economists led by the Financial Times, analysts expect the Eurozone economy to rebound by 4.3% this year. This figure heavily contrasts with the International Monetary Fund’s projection, which stood at 5.2%.

In terms of unemployment, analysts are more pessimistic with predictions of over 10%, significantly higher than the last reading.

Upcoming Events

• Tomorrow, IHS Markit will release both the Composite and Service PMIs for the Eurozone.
• On Thursday, retail sales data is expected to be published.
• Also on Thursday, the Consumer Price Index, business climate and industrial confidence data will be released.
• On Friday, November’s unemployment data will be released.