BoE interest rate decision due today

The BoE’s interest rate decision is set to occur during today’s European session. Currently, the majority of market participants are anticipating the bank to cut interest rates by 25bp from 5.25% to 5%, with GBP OIS currently implying a 63% probability for such a scenario to materialize, with the rest being attributed to the bank keeping interest rates steady.The Fed kept interest rates steady yesterday, as was widely expected by market participants. In the bank’s accompanying statement, it was stated that “there has been some further progress toward the Committee’s 2 percent inflation objective”, implying that with progress being made in the battle against inflation, the door for a September rate cut is open. In particular, FFF currently implies an 88.25% probability for a 25bp cut. As such, should Fed policymakers further imply that a rate cut may occur in September it could weigh on the greenback. However, the US Employment data for July which is set to be released tomorrow upend the current market expectations, should the US Employment data showcase a resilient labour market.Over in Asia, China’s Caixin manufacturing PMI figure for July came in lower than expected at 49.8 and has now entered contraction territory. The financial release implies that China’s manufacturing sector may be shrinking and thus given the close economic ties between Australia and China, it could lead to a reduction in demand for raw materials stemming from Australia, which in turn may weigh on the AUD.Tensions in the Middle East are escalating, with the NYT reporting that Iran’s supreme leader, Ayatollah Ali Khamenei has ordered a retaliation strike against Israel. The renewed possibility of a war may have provided support for gold and oil prices.

GBP/USD appears to be moving in a sideways fashion. We opt for a sideways bias for the pair and supporting our case is the RSI indicator below our chart which currently registers a figure near 50 implying a neutral market sentiment, in addition to the narrowing of the Bollinger bands which may imply low market volatility. Yet, we do not that an upwards moving trendline appears to have been incepted on the 29 of July. Moreover, the BoE’s decision later on today may increase volatility, with the pair moving in either direction. Nonetheless, for our sideways bias to continue, we would require the pair to remain confined between the 1.2812 (S1) support level and the 1.2860 (R1) resistance line. On the flip side, for a bearish outlook, we would require a clear break below the 1.2812 (S1) support line with the next possible target for the bears being the 1.2740 (S2) support level. Lastly, for a bullish outlook, we would require a clear break above the 1.2860 (R1) resistance line with the next possible target for the bulls being the 1.2927 (R2) resistance level.

XAU/USD appears to be moving in an upwards fashion. We maintain a bullish outlook for the precious metal and supporting our case is the RSI indicator below our chart which currently registers a figure near 70. Implying a bullish market sentiment, in addition to the upwards moving trendline which was incepted on the 26 of July. For our bullish outlook to continue, we would require a clear break above the 2450 (R1) resistance line, with the next possible target for the bulls being the 2483 (R2) resistance level. On the flip side, for a bearish outlook we would require a break below the 2420 (S1) support line with the next possible target for the bears being the 2378 (S2) support level.

Other highlights for the day

Today in the European session, we get the UK’s nationwide house prices rate, France’s and Germany’s and the UK’s manufacturing PMI figures all for the month of July, and the Eurozone’s unemployment rate for June. During today’s American session, we get the US weekly initial jobless claims figure, Canada’s manufacturing PMI figure for July, the US S&P manufacturing PMI figure and ISM Manufacturing PMI figure both for July. In tomorrow’s Asian session, we get Australia’s PPI rate for Q2. On a monetary level, we highlight the BoE’s and CNB’s interest rate decisions which are set to occur later on today.