- UK core inflation remains elevated at 6.9% and above the consensus estimate of 6.8%
- BOE expected to raise rates another by almost 75 bps more in this tightening cycle
- Aussie downside extends over China’s economic struggles
World Cup Final Match Set
England has advanced to its first Women’s World Cup final with a 3-1 victory over co-host Australia. Soccer mania was embraced in Australia as the women’s soccer team’s put up an impressive run that fell two wins short of becoming champions. The Matildas dream run might be over, but the pain for the Australian dollar seems like it might be poised to continue. England will play Spain in the Women’s World Cup Final on Sunday.
UK CPI refuses to cool
The British pound rallied earlier in London after the July inflation report showed core and services pricing pressures are proving to be sticky. Inflation is slowly coming down and this will not let the BOE ease up on tightening. With the risk of a few more rate hikes on the table, the pound could still remain in overbought territory a while longer against the Australian dollar. The macro backdrop supports further GBP strength, but most traders might have a tight leash on that trade.
GBP/AUD Weekly Chart
Source: Trading View
The GBP/AUD weekly chart shows just how strong the bullish trend has been since last fall. Price action over the last week surged above key trendline resistance that started in October. The fundamentals have turned rather bleak for Australia given the current negative sentiment with China, their most important trading partner. Summer trading could see this become a very volatile currency pair over the next couple of weeks.
GBP/AUD 4-four Chart
Source: Trading View
We haven’t seen a substantial correction since May, so some technical traders might be concerned with how overbought GBP/AUD has become across multiple time frames. If exhaustion starts to settle for the bullish rally, initial support lies at the 1.9620 level. If bearish momentum begins, long-term downside targets include the 1.9220 level, followed by the 1.9105 level. Eventually, Chinese officials will be more aggressive with stimulus, with the timing likely happening before the end of September. If China can ease global growth concerns that should be Aussie dollar positive.
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