Another GBP Drop as Soft Inflation Adds to Brexit Woes, USD Eyes YTD High - US Market Open
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US equity futures relatively mixed (DJIA flat, Nasdaq 100 -0.1%, S&P 500 -0.1%) with the Nasdaq underperforming slightly. In pre-market, Alphabet shares are pointing losses of 0.6% after reports that Alphabets Google is to face a record fine valued at $4.34bln. Elsewhere, European bourses are broadly in the green with slight outperformance in the DAX amid reports that the EU is said to be exploring talks with President Trump to reduce car tariffs.
GBP: Today’s soft inflation report provided another dent for the Pound, which breached its YTD low and tested the 1.30 handle. However, barrier options at 1.30 has provided some support for now. The downbeat inflation report has added to the Brexit and political woes, which have continued to plague GBP. A breach of 1.30 could pave the wave for 1.27-28.
USD: The greenback is still finding support from yesterday’s relatively upbeat assessment by Fed Chair Powell who largely stuck to script by reiterating that gradual rate hikes remain appropriate for now, while noting that the US economy is in a good place, in turn downplaying the risks that trade disputes have posed thus far. The USD eyes the YTD high (95.53) yet again after breaking above the 95.00 handle.
Crude oil: The sell-off in oil prices continues with Brent crude trading lower by 0.5%, signs suggest that losses may persist with the Brent curve moving back into contango (spot price lower than forward price). Overnight, the latest API crude oil inventories data showed a build of around 600kbpd, against an expected drawdown, consequently weighing on prices. Focus now turns to the DoE report.
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GBPUSD: Data shows 72.3% of traders are net-long with the ratio of traders long to short at 2.61 to 1. In fact, traders have remained net-long since Apr 20 when GBPUSD traded near 1.40861; price has moved 7.4% lower since then. The number of traders net-long is 9.9% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 13.6% lower than yesterday and 20.1% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBPUSD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBPUSD-bearish contrarian trading bias
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--- Written by Justin McQueen, Market Analyst
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.