UK Employment Data and US PPI Ahead: Technical Outlook for GBP/USD and EUR/USD
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1. Pound To Driven by UK Employment
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Recently, BoE Monetary Policy Committee’s member Catherine Mann warned that UK inflation might rebound in the coming months. She noted that while inflation has decreased, the price trend may take a long time to fully subside. Mann was one of the policymakers who voted to keep interest rates unchanged at the last meeting.
In August, the Bank of England cut rates by 25 basis points for the first time. However, the central bank took a cautious approach, indicating that more evidence was needed to confirm that inflation was under control. Therefore, future rate cuts may not be too fast or extensive. BoE stated that rate decisions would be based on “meeting-by-meeting”, leading to investors uncertainty about future rate path.
The market, however, currently sees another rate cut by the Bank of England in September, but this expectation largely depends on upcoming economic data. Today’s UK employment data, including average earnings, claimant count change, and unemployment rate, will provide some clues for traders. Strong employment data could hinder the September cuts probability, while weak data might reinforce the case for more cuts.
On the technical front, GBP/USD rebounded after touching around the 1.2700 level, which also coincides with the 200-day moving average support. This is the second time since May's uptrend that the pair has touched the 200-day MA, potentially marking the recent low.
In the short term, GBP/USD has rebounded after multiple supports in the 1.2700 to 1.2660 area and has broken above the 1.2730 short-term resistance. This rebound has formed a small trend reversal on the hourly chart, with a bullish crossover between the 20-hour and 50-hour moving averages. This suggests that the recent decline may have bottomed out, increasing the likelihood of a reversal.
Additionally, a wedge or ascending channel pattern has formed. If GBP/USD breaks above this pattern and the 1.2775 resistance level, further upside movement may be expected.
Today’s UK employment data could be a significant catalyst for GBP/USD. Meanwhile, US Producer Price Index (PPI) data, scheduled for release during the US trading session, could also impact the dollar. A lower-than-expected PPI might be bearish for the dollar, potentially driving GBP/USD higher.
2. US PPI Provides Inflation Clues
Tonight, the US Producer Price Index (PPI) will be the first major US economic data of the week for investors. This data could provide key insights into US inflation. If tonight’s PPI data indicates further easing of inflation from producer’s end, the Consumer Price Index (CPI) may also decline, which could strengthen market expectations for a Federal Reserve rate cut and weaken the dollar.
Following lower-than-expected US non-farm payrolls earlier in the month, EUR/USD saw a significant rise. Although there was a quick pullback after extending gains last week, the price has recently stabilized above the 1.0900 to 1.0910 range. Traders remain optimistic about the euro.
Maintaining above 1.0900 indicates continued bullish momentum, but additional positive factors are needed to push the price higher. Tonight’s US PPI data might serve as the necessary catalyst.
Currently, a clear price range is observed between 1.0910 and 1.0940. A breakout above the 1.0940 level could lead to further gains for EUR/USD. However, with tonight’s PPI data still pending, traders should monitor for potential breakouts from this range.
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