Cable (GBP/USD) opens the week on the backfoot and trades just above last week’s two-year low (1.21560) as the market prepares for the latest UK jobs and inflation releases. On Tuesday the jobs report is expected to show the UK unemployment rate steady at 3.8%, below pre-pandemic levels, while on Wednesday the inflation report is expected to show headline inflation for April hitting 9.1%, with the core reading expected at 6.2%. UK inflation is currently at its highest level seen in 30-years. While the Bank of England has warned that inflation will continue to rise in Q2, headline inflation in excess of 9% will still rattle markets.
The Treasury Select Committee will have a chance to grill the UK central bank about inflation, among a number of topics, later today (15:00 UK) with Andrew Bailey, Dave Ramsden, Michael Saunders, and Jonathan Haskel all appearing to discuss the May Monetary Policy Report
For all market-moving economic data and events, refer to the DailyFX calendar
Away from economic data, political risk is likely to ramp up further in the next few weeks as the UK gears up to alter parts of the Northern Ireland Protocol, an action that will likely lead to EU retaliation. Irish Minister for Foreign Affairs, Simon Coveney, recently said that there was a possible landing zone for talks between the two parties, but if the UK moved unilaterally then the EU response would be very negative. Political risk is back and will weigh on Sterling.
GBP/USD has fallen over 20 big figures (15%) over the last year on a combination of Sterling’s weakness and US dollar strength. In the short-term, there is little reason for this backdrop to change although the USD may be nearing the last leg of its multi-month move. Support for the pair looks likely at 1.2000, if we get there, with last week’s high around 1.2415 likely to act as first-line resistance.
GBP/USD Weekly Price Chart, May 16, 2022
Retail trader data show 81.09% of traders are net-long with the ratio of traders long to short at 4.29 to 1. The number of traders net-long is unchanged than yesterday and 6.58% lower from last week, while the number of traders net-short is 4.85% lower than yesterday and 5.59% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall. Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/USD trading bias.
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