BoE expected to cut rates, yet will it signal for more?

The USD tended to lose ground against its counterparts yesterday, with fundamentals and weak financial data weighing on the greenback as the macroeconomic outlook of the US is darkening. Yesterday, US President Trump stated that a 100% tariff is to be imposed on semiconductors imported in the US. It should be noted that various companies are to be exempt, while Apple announced a $100 billion investment in semiconductor production. It seems that US President Trump’s tariff war is expanding beyond a vertical form of a country-by-country basis, now horizontally on a sector-by-sector basis. We cite the pharmaceutical sector as the next possible target for Trump’s tariffs, which in turn may imply a continuation of trading tensions. Should that be the case, we may see developments on the issue weighing on the USD as the uncertainty is to be enhanced. Furthermore, a possible heightening of trading tensions to support gold prices, as the precious metal may enjoy safe haven inflows, while the uncertainty may produce a risk avoidance that may weigh on US equities. We made an adjustment to the chart of gold by raising the S1 3365 to 3385 (R1) thus setting as a resistance line, given the flattening of gold’s price over the past three days. For the time being we note the stabilisation of the precious metal’s price while at the same time the RSI indicator remained just above the reading of 50, remaining unconvincing for the precious metal’s bullish tendencies. Hence we maintain our bias for gold’s sideways motion to be maintained at the current stage. Should the bulls take over, we may see gold’s price breaking the 3385 (R1) resistance line and start aiming for the All-Time-High of 3500 (R2) level. Should the bears be in charge of the gold’s direction, we may see it breaking the 3245 (S1) support line thus paving the way for the 3120 (S2) support base.

Across the pond, BoE is to release its interest rate decision today and is widely expected to proceed with a 25 basis points rate cut. Characteristically, GBP OIS currently imply a probability of 92.5% for such a scenario to materialise, but also imply another possible rate cut in the November meeting. Hence we see the case for a dovish inclination of the market’s expectations and it may take more than a rate cut by the BoE for the pound to weaken. Should the bank cut rates as expected, and adopt a strong dovish tone in its forward guidance, we may see the pound retreating, while on the flip side, should the bank express any hesitations towards easing further its monetary policy, we may see the market being forced to readjust its expectations and the pound to gain asymmetric support. GBP/USD was on the rise over the past four days and today’s Asian session, aiming for the 1.3435 (R1) resistance line. Despite the upward movement of the past few days, the pair has been forming lower peaks and lower troughs since the 1st of July allowing for a downward trendline to form, hence we maintain a bearish outlook for the pair at the current stage. Yet we have to note that the RSI indicator is on the rise nearing the reading of 50, implying an easing of the bearish sentiment for the pair among market participants. For a continuance of the bearish outlook we would require the pair to reverse the gains made over the past four days and continue to break the 1.3205 (S1) support line thus opening the gates for the 1.3010 (S2) base. Should the bulls take over, we may see cable breaking the 1.3435 (R1) line, continue higher to break the prementioned downward trendline in a first signal that the downward motion has been interrupted and continue to reach if not breach the 1.3640 (R2) resistance barrier.

Other highlights for the day:

Today we get Germany’s industrial output for June, the UK’s Halifax House Prices for July, Sweden’s preliminary CPI rate for July, the US weekly initial jobless and Canada’s Ivey PMI figure for July. On a monetary level, we get from the Czech Republic, CNB’s interest rate decision. In tomorrow’s Asian session, we get Japan’s current account balance, and BoJ’s summary of opinions for the July meeting.

XAU/USD Cash Daily Chart

• Support: 3245(S1), 3120 (S2), 2955 (S3)
• Resistance: 3385 (R1), 3500 (R2), 3650 (R3)

GBP/USD Daily Chart

• Support: 1.3205 (S1), 1.3010 (S2), 1.2805 (S3)
• Resistance: 1.3435 (R1), 1.3640 (R2), 1.3835 (R3)

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