Oil, GBP/USD Forecast: Two trades to watch 1407

Oil Rises to Monthly High as U.S.-Iran Tensions Threaten Strait of Hormuz Supply

Oil prices are extending gains on Tuesday, rising 6% this week to their highest level in a month as escalating U.S.-Iran hostilities renew concerns over crude supplies through the Strait of Hormuz.

President Trump announced new shipping measures in the Strait, with the U.S. imposing a 20% fee on all commercial traffic transiting the route. The U.S. has also reimposed its naval blockade on Iranian ports near the Strait. Together, these measures have raised concerns over potential supply disruptions, pushing crude prices higher.

Oil prices have rallied 13% so far in July, with Brent up almost 15%, as supply risks return to the forefront and the geopolitical risk premium rebuilds.

So far, a full closure of the Strait has not occurred, but the supply outlook is becoming increasingly uncertain. Shipping data from Monday showed that the number of tankers transiting the Strait had fallen to just a handful over recent days, marking the lowest level in two months. Any prolonged reduction in vessel traffic could trigger another leg higher in oil prices.

There are also concerns that Iran could delay negotiations until after the U.S. midterm elections, potentially keeping geopolitical tensions elevated and supporting oil prices for longer.

Conversely, if crude continues to flow despite the military escalation, some of the geopolitical risk premium could gradually fade, limiting further upside.

Oil forecast – technical analysis

Oil broke down from its symmetrical triangle pattern and falling to a low of $67 before rebounding.

Since then, the price has recovered above the 200 SMA at $74.50 and is now testing resistance around the psychological $80 level, which also coincides with the 61.8% Fibonacci retracement of the $55-$120 move.

Buyers, supported by the RSI above 50, will look for a break above $80 to target the $87-$88 resistance zone, where the 50 SMA and the 50% Fibonacci retracement converge. Above there, $95 comes into focus.

On the downside, initial support is seen at the 200 SMA around $75. A break below this level would expose the $67-$70 support zone. A move beneath that area would create a lower low and open the door towards $62.

Will US CPI, Fed Chair Warsh’s testimony & BoE Bailey’s speech pull GBP/USD lower?

GBP/USD is edging higher towards 1.3350 on Tuesday as the U.S. dollar eases in cautious trading ahead of U.S. inflation data and Federal Reserve Chair Kevin Warsh's testimony before Congress.

While the dollar has pulled back modestly, the broader outlook continues to remain supportive given renewed U.S.-Iran tensions and higher oil prices, both of which risk adding to inflationary pressures.

Today's CPI report is expected to show headline inflation easing to 3.8% from 4.2%, while core inflation is forecast to remain unchanged at 2.9%. Core inflation is likely to receive the closest attention from the Federal Reserve. A stronger-than-expected reading could reinforce the view that interest rates will remain higher for longer.

Federal Reserve Chair Kevin Warsh will also appear before the Senate Banking Committee today and tomorrow as part of his semi-annual testimony. Lawmakers are likely to press him more directly than after the June FOMC meeting. For a Fed Chair who prefers limited forward guidance, the hearings could provide more insight than usual into his assessment of inflation, the labour market and the outlook for interest rates. A hawkish tone would likely support the U.S. dollar.

Sterling has also found some support from expectations that the Bank of England may still need to raise interest rates this year to prevent inflation from becoming entrenched, particularly after renewed Middle East tensions pushed oil prices 13% higher so far this month.

Bank of England Chief Economist Hugh Pill recently signalled that further policy tightening may be required if inflation proves persistent.

Attention now turns to Bank of England Governor Andrew Bailey, who is due to speak later today. Any dovish remarks could weigh on sterling by reinforcing expectations that UK interest rates have peaked.

Domestic politics also remain in focus. Andy Burnham is expected to become the new Labour leader when the leadership contest concludes on Friday and is widely expected to be appointed Prime Minister next Monday. Markets will be watching closely for his choice of Chancellor of the Exchequer. For both the gilt market and sterling, maintaining confidence in the UK's fiscal rules will remain paramount.

GBP/USD forecast – technical analysis

GBP/USD continues to trade below its falling trendline dating back to the start of the year.

The pair recently recovered from the 1.3200-1.3150 support zone but ran into resistance at both the 50 SMA and the 200 SMA, reinforcing the broader bearish outlook. The price has since slipped back towards support around 1.3350.

Sellers will look for a break below this support level to expose the 1.3200-1.3150 support zone. A move beneath that area would create a lower low and reinforce the bearish trend.

On the upside, buyers need to reclaim the 200 SMA around 1.3400 and clear the July high at 1.3450 to bring 1.3500 into focus, where the falling trendline and the late-May high converge. A move above there would improve the broader technical outlook and open the door towards 1.3650.