After suffering steep losses following further signs of economic momentum slowing down in the recent UK GDP report, the GBPUSD managed to recover its momentum and conclude the week around 1.5467. The GBPUSD encountered a significant rally late in trading, however the pair is now close to approaching the 1.55 zone that has repeatedly offered stubborn resistance to the currency pair for over a month. Unless demand for the Dollar takes a dramatic dive following another round of pushed back US interest rate expectations, opportunities for the pair to finally trade above 1.55 are slim.
Markets will be looking ahead to a busy Thursday for the Pound with both the latest Bank of England (BoE) interest rate decision and inflation report scheduled to be released. Although expectations for a UK rate rise in November are largely non-existent, GBP bulls will be hoping that the BoE inflation report expresses optimism that the recent gains in wage growth will brighten inflation prospects as we conclude the year and that the BoE will once again repeat its preference towards raising UK interest rates. If neither of these occur, the GBPUSD will be risk to facing another sudden reversal in momentum.
The EURUSD has regained some confidence and moved back above 1.10 after economic data showed inflation in the Eurozone has returned to zero in October after dipping into negative territory during September. The slight improvement in the inflation reading might reduce expectations that the European Central Bank (ECB) will ease monetary policy once again in December, but I personally expect the ECB to continue repeating the growing threat of further action because the EU economy is continually being plagued by both stagnant economic growth and dangerously low inflation.
Moving forward, gains in the EURUSD are seen as limited to USD weakness and traders in the pair will be monitoring the reaction to Friday’s highly anticipated US Non-Farm Payroll report. The past two NFP’s have disappointed the USD bulls and if November’s NFP also disappoints, this should all but confirm that the Federal Reserve will not be raising US interest rates in 2015. Any USD weakness would improve the potential for the EURUSD to trade higher up the charts.
USD weakness would also provide an opportunity for Gold to recover momentum, after the metal dropped by $40 following the Fed outlining that there is still potential for a US interest rate rise in 2015. I personally believe the Federal Reserve missed its chance to raise US interest rates in September, and that the ship for any rate rises in 2015 has now been missed. With central bank policy elsewhere also being uncertain, this could improve investor attraction towards Gold with this meaning the metal might resume the buying momentum seen in early October.
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