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GBP/USD falls after UK GDP contracts and ahead of US CPI. Oil rises after OPEC’s report & with EIA stockpile data due.
 

GBP/USD falls after UK GDP contracts and ahead of US CPI

• UK GDP falls -0.5% MoM in July vs -0.2% forecast
• US CPI expected 3.6% YoY up from 3.2%
• GBP/USD tests 3-month lows

GBP/USD has fallen to its 3-month low around 1.2450 after UK GDP contracted by more than expected and as investors look ahead to US inflation data.

The UK economy shrank at the quickest pace in seven months amid poor weather and as strikes hit the public sector. GDP contracted -0.5%. MoM in July after rising 0.5% in June. This was below expectations of a 0.2% contraction.

The data adds to mounting evidence that the UK economy is losing momentum as the BoE’s interest rate hikes take effect.

The data comes after figures yesterday showed that UK unemployment rose to the highest level since 2001.

The markets are pricing in a 25 basis point rate hike in September. However, last week, BoE governor Andrew Bailey signaled that the central bank's interest rate hiking cycle is almost complete.

Meanwhile, the US dollar is pushing higher as investors await inflation data which is expected to show that headline CPI rose to 3.6% YoY, up from 3.2% YoY in July. Meanwhile, core inflation is expected to cool to 4.3%.

The market is pricing in a 93% probability that the Fed will keep interest rates on hold in September. However, an uptick in inflation may raise questions over whether the Federal Reserve can keep interest rates on hold again in November.

Recent data has shown that the US economy is more robust and resilient than expected. Meanwhile, oil prices rising to a 10-month high, lifting prices at the pump may not support the Federal Reserve’s on-hold narrative.

Hotter than expected inflation could raise the prospect of a November rate hike, from the current probability of 40% boosting the US dollar.
 

GBP/USD forecast -technical analysis

GBP/USD trades below a falling trendline, testing the 3-month low of 1.2445, just above the 200 sma at 1.2430. The RSI supports further downside.

A break below 1.2445 and the 200 sma at 1.2430 open the door to a deeper selloff to 1.23 the May low.

Should the support hold, buyers need to rise above 1.550 the weekly high, to bring the falling trendline resistance ay 1.2615.
 

Oil rises after OPEC’s report & with EIA stockpile data due

• OPEC forecast a shortfall of 3 million barrels a day
• Tight supply is the main driver of the shortfall
• API stockpiles unexpectedly rose. Will EIA inventories as well?
• Oil trades in overbought territory

Oil is rising on Wednesday, extending gains for a second straight day, after rising by 2% yesterday and hitting a fresh 10-month high.

WTI has risen over 10% in the last three weeks, boosted by tight supply and OPEC forecasting an expected supply shortfall in the coming quarters.

According to the latest data published by OPEC, global oil markets face a shortfall of over 3 million barrels per day in the coming quarter, which could potentially be the largest deficit in more than a decade.

While Saudi Arabia and Russia extended the voluntary oil production cuts totaling 1.3 million barrels per day until the end of the year, they have done so even though oil markets are already tightening and amid a period of record demand.

According to OPEC, world oil inventories have fallen sharply this quarter and are expected to drop 3.3 million barrels a day over the next three months.

High oil prices threaten to bring renewed inflationary pressures to the global economy with prices rising and American Airlines warning of increased costs.

However, the rise in crude oil prices could be limited as investors looked ahead to US inflation data and amid signs of a build in inventories.

Data from the API showed that crude oil inventories rose 1.2 million barrels in the week to Sept 8, missing forecasts of a 2 million barrel decline. The data also showed a 4 million build in gasoline stockpiles as the US summer driving season comes to an end.

Looking ahead, EIA data is due later today and is expected to show a stockpile draw of 2.3 million barrels after a 6 million barrel draw in the previous week.

US inflation data will also be in focus and is expected it to accelerate in August. Signs of sticky inflation could fuel bets that the Federal Reserve will hike interest rates further, a scenario which could slow economic activity and weigh on the oil demand outlook over the coming months.
 

Oil forecast – technical analysis

Oil has booked a series of higher highs and higher lows, reaching a 10-month peak. The RSI is in overbought territory so buyers should be wary. A rise above yesterday’s high of 89.00 opens the door to resistance at 90.00, with a move above fueling bullish conviction and here paving the way to 93.35 the November high.

Support csn be seen at 84.40, the August high, and 83.30, the 20 sma.

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