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market analysis
With the fiscal turmoil again, can the pound stabilize its rise?
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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Decision Analysis]: The fiscal turmoil has recurred, can the pound stabilize its rise?" Hope it will be helpful to you! The original content is as follows:
On Wednesday (July 23), the pound pound continued its rebound trend against the US dollar (GBP/USD), hitting a maximum of 1.3548 in the day, maintaining a fluctuation above the middle track of the Bollinger Band. Although the UK's fiscal risks have once again attracted attention, market expectations of the Bank of England's upcoming interest rate cuts and the weakness of the US dollar have affected the pound's exchange rate. In the short term, traders will closely monitor the upcoming preliminary PMI data for the UK and the US in July as an important basis for judging the economic momentum of the two countries.
Brands
Latest data show that the British government hit its second highest monthly loan amount since 1993 in June to cope with the debt interest pressure brought by inflation. This fiscal expansion may prompt the British government to raise taxes in the fall budget, further suppressing corporate profits and residents' disposable income, posing a risk of economic growth.
Nevertheless, the pound is still favored by the market, mainly because the market expects the Bank of England to launch a rate cut cycle at its policy meeting in August. Several institutions, including Goldman Sachs, Citigroup, Bank of America and Morgan Stanley, all expected a 25 basis point decline. The clarification of interest rate path expectations will help stabilize market sentiment in the short term and weaken short suppression of the pound.
On the United States, although the Trump administration reached a trade agreement with Japan, plans to impose a 15% tariff on Japanese products, and promised to open the market to the United States and invest $550 billion, the US dollar response was flat, and the US dollar index (DXY) hovered around 97.45, approaching a two-week low. The market will pay attention to the US July PMI data released on Thursday to determine whether its economic momentum can continue.
Technical:
The current pound pound is in a clear technical rebound rhythm against the US dollar. K-line chart shows that exchange rate is from lowSince the rebound, 1.3364 has broken through the Bollinger middle track (1.3464) and key resistance of 1.3500, reaching a maximum of 1.3548. The Bollinger Band shows signs of expansion, indicating an increase in volatility. The current price runs between the middle and upper rails of the Bollinger Band, with the potential to further test the upper rail pressure (1.3561).
MACD indicators remain in the golden cross state, DIFF and DEA both cross the zero axis, the bar chart continues to grow but the momentum converges slightly, indicating that there may be a risk of adjustment in the short term. RSI (14) remains above 67, approaching the overbought area, and there is short-term pressure to take profits.
Analysts believe that short-term support focuses on 1.3500 and Bollinger's middle rail 1.3464, and if it is lost, it may backtest the 1.3400 area; the upper resistance focuses on 1.3548 and Bollinger's upper rail 1.3561, and if it breaks through, it is expected to challenge the previous high of 1.3752.
Previous observation of market sentiment:
The current rebound of pound reflects that market sentiment is in a state of tendency to bulls. Although the UK's fiscal situation is under pressure, the market is more concerned about the loose expectations brought about by the turning point of monetary policy in the future. Against this background, the pound is supported by interest rate expectations and the weakness of the US dollar in the short term. RSI is in a relatively strong area, and the MACD golden cross continues, indicating that the market sentiment tends to be positive, but the high-level technical indicators are close to the key overbought level, which also indicates that the market is in a short-term overheating stage.
Future Outlook:
Bules Outlook:
Analysts believe that if the initial PMI in the UK in July is better than expected, and the US data has not improved significantly, the relative strength of the pound will be further strengthened. If the exchange rate effectively stands above 1.3561, the space to rise to 1.3660 and 1.3720 will be opened, and the medium-term target may point to the previous high of 1.3752. At that time, we need to pay attention to whether the Bollinger bands will accompany further expansion.
Short prospects:
Analysts believe that if the UK data is weak, the US PMI is unexpectedly strong, or if the UK fiscal problems fermentate, the pound may experience a pullback. After falling below the 1.3500 support, it will backtest the 1.3464 and 1.3400 line, further supporting and focusing on 1.3364. Technical indicators have already shown signs of overbought in the short term. If the fundamentals are weakened, it may trigger a "false breakthrough" decline.
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