GBP/USD, Oil Forecast: Two trades to watch

GBP/USD rises as inflation finally reaches 2%

• UK CPI eased to 2% YoY in May from 2.3% in April
• US close for Juneteenth public holiday
• GBP/USD rises above 1.27

The pound is edging higher after UK inflation data showed consumer prices cooled back to the Bank of England's 2% target.

As measured by CPI, inflation was 2% in May, in line with forecasts and down from 2.3% in April. This marks the first time that Inflation has cooled to the Bank of England's target since July 2021, after easing from a peak of over 11% in late 2022.

The crucial service sector inflation reading came in a touch higher than expected at 5.7%, down from 5.9% but still ahead of forecasts of 5.5%. This sticky service sector inflation is keeping the pound supported.

The data comes ahead of the Bank of England's interest rate decision tomorrow. The central bank is widely expected to leave interest rates on hold given the sticky service sector inflation reading and the election on July 4th. Instead, however, the central bank could prepare the markets for an August rate cut on the condition that the service sector cools further.

Meanwhile, the US dollar is setting lower after yesterday's retail sales data came in weaker than expected, supporting the view that the Federal Reserve could cut interest rates sooner.

US retail sales fell 0.1% month over month, reflecting a downshift in consumer spending amid persistent inflation and a gradually cooling jobs market.

Today, the US stock markets are closed in observance of the June 10th public holiday, so USD trading volumes could be low.

GBP/USD forecast – technical analysis

GBP/USD extended its recovery from Friday's low of 1.2650, rising above 1.27 and back into the familiar range within which it has traded since 1.28.

Buyers will look to rise above the rising trendline at 1.2750 to retest 1.28.

Sellers will need to overcome several obstacles. Immediate support is at 1.27 before 1.2650, the June low. A break below here exposes the 100 SMA at 1.2640. Below here, 1.26 comes into play.

Oil steadies amid geopolitical concerns and a build in crude stockpiles

• Oil inventories unexpectedly rise
• Geopolitical tension in the Middle East supports oil prices
• Oil steadies above $80.00 at a 7-week high

Oil prices are struggling on Wednesday but held close to seven-week highs as markets weighed up increasing geopolitical conflict and demand worries after a surprise build in US crude inventories.

Oil had risen over $1.00 yesterday after a Ukrainian drone attack resulted in an oil terminal fire at a major Russian port.

Meanwhile, in the Middle East, Israel's foreign minister Katz warned of nearing all-out war with Lebanon's Hezbollah even as the US attempted to lower tensions. Escalating war in the region increases the prospect of supply issues in key producing countries.

Any resolution between Israel and Hezbollah in the near term looks unlikely. It could keep oil prices supported, even after weaker-than-expected Chinese industrial output, and despite the Federal Reserve saying that they will cut rates just once this year rather than three times as forecast in March.

According to the API, crude oil inventories rose by 2.264 million barrels for the week ending  June 14. Inventories are at their highest level since March 2023, raising some concerns over demand.

Oil forecast – technical analysis

Oil has extended its recovery from 72.50, rising above the 200 SMA and testing 80.50, the late May high. A rise above 80.50 brings 81.50, the May high, into focus, ahead of 84.50, the late April high.

On the downside, support can be seen at 79.50, the 200 SMA, with a break below here opening the door to 77.65, the weekly low.