Technical recession in the US will force the Fed to slow down

(Alexander Kuptsikevich – FxPro Financial Services Limited)

The US economy slipped into a technical recession. Preliminary estimates for the second quarter recorded a fall of 0.9% after a decline of 1.6% (seasonally adjusted data annulled). Despite the frightening figures in the headline, the US economy has lost 0.6% in the last two quarters, if we count as Europe does – a fall, but not a big one.

Nevertheless, we should remember that this dip results from a decrease in budget spending following the end of covid-related programs and real estate investment but is not a result of a rate hike. Monetary policy acts on the economy with a lag of approximately six months. Therefore only the results of current decisions will be available at the end of the fourth quarter.

The current economic data indicates that the state’s tightening of monetary policy has already moved into a cooling-off phase and has returned to its long-term GDP growth trend.

With such input data, the chances increase that the Fed will soon slow down sharply the pace of rate hikes and could move to policy easing rather quickly. It is worth remembering that in 2018 the Fed raised its rate to 2.5%, which caused markets to collapse and forced the regulator to move to policy easing soon afterwards.

Daily technical and trading outlook – GBP/USD

(AceTrader Team)

Trend daily chart

Down.

Daily indicators

Turning up.

21 HR EMA

1.2154

55 HR EMA

1.2119

Trend hourly chart

Hourly indicators

Rising

13 HR RSI

14 HR DMI

+ve

Daily analysis

Resumption of recent upmove.

Resistance

1.2290 – 38.2% r f 1.3147-1.1761.
1.2239 – Jun 27 low (now res).
1.2191 – Thur’s 4-week high.

Support

1.2143 – Thur’s Asian low.
1.2104 – Thur’s low.
1.2087 – Wed’s top (now sup).

GBP/USD – 1.2172.. Cable also swung in tandem with euro in hectic Thur’s session. Price edged higher to 1.2191 in Europe n tumbled to 1.2104 at NY open but then ratcheted higher after -ve U.S. GDP to 1.2184 near the close.

On the bigger picture, despite cable’s brief break of 2016 post-Brexit low of 1.1491 to a near 35-year trough of 1.1412 in mid-Mar 2020 on safe-haven usd’s demand following free fall in global stocks, price rallied to 1.3686 on the last trading day of 2020 following a last-minute EU-UK trade deal, then to a near 34-month 1.4241 peak in Feb suggests a major low is made. Having said that, cable’s erratic fall to 1.2162 in Dec 2021 n then continued decline this year to a 2-year bottom at 1.1934 in mid-Jun n weakness to a 2-year trough of 1.1761 in mid-Jul signals correction fm 1.1412 over n may head to 1.1700/10, ‘bullish con- vergences’ on daily indicators should keep price abv 1.1562. Abv 1.2162, 1.2332.

Today, Wed’s rally abv 1.2090 to 1.2187, tehn Thur’s 1-week 1.2191 high confirms recent erratic rise fm Jul’s fresh 2-year 1.1761 bottom remains in pro- gres n would head to 1.2230/35, ‘bearish divergences’ on hourly oscillators may cap price below 1.2290. Below 1.2104 signals top made n risks 1.2078, 1.2021.