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GBPUSD Analysis (Sept, 2021) Inflation Risk & Staff Shortage

Companies across the UK are currently facing a rising battle of keeping talented staff in the company but also recruiting new talent. These two factors are causing prices to rise, especially in the supply chain sectors. Heavy goods vehicle drivers are one of the main types of employees that are being scouted and sought after, companies are offering them better salaries, bonuses and incentives to continue working at their company.

This however, has started to create a rise in food prices which is an early warning sign of inflation.

These early signs could be an indication that the Bank of England and the UK government will start to intervene in the markets. What may happen is a reactionary interest rate hike to curb inflation and reduce money supply.

Throughout this analysis our indicators are showing early signs of an upcoming bullish move but only time will tell if this trend continues.

Logikfx Technology Summary

This week we're seeing an interesting phase as currencies are starting to congest with fundamental data suggesting similar signals on both sides. GBPUSD was as an interesting pair to consider due to an overall rise in strength since mid August and majority of the economic indicators suggesting a bullish continuation.

Currently the following indicators are showing bullish signs:

The only conflicting one was the interest rate differentials indicator which saw bearish signs.

Macro currency strength meter

The macro currency strength meter over the past few weeks has started showing early interesting signs for a bullish GBPUSD move. The image above shows in green the uptrend in macro data for GBP and the down trend in data for USD.

This combination if continues will start to generate a stronger bullish conviction on GBPUSD.

Currently, both currencies are still within the negative region meaning we may want to wait a week or two to see if one GBP continues to strengthen and two USD continues to weaken.

GDP Differential Indicator

The GDP differential indicator shows us the output of each country selected, in this case we can see that the UK is expected to outgrow the US in the coming year.

This is bullish for GBPUSD.

What's interesting is that 2022 will be the first time the differential crosses 0 meaning if the bullish GDP trend continues we may see GBP trend upwards for the years to come.

Trade analysis (Imports/ Exports)

Ford motors was one of the companies stock analysed against GBPUSD, this was to assess the currency correlation between the two and if we can uncover any anomalies in the data. What we saw is that Ford actually has a 66% positive correlation against GBPUSD.

This means 66% of the time as Ford Motor prices rise GBPUSD follows.

You can see the relationship hold true the past 5 years.

Starting from Jan 2015 we can see Ford motors take a hit following a massive down trend all the way to 2020. This is where there was a huge reverse and actually Ford started to gain which saw GBPUSD bottom out and up trend.

What we're seeing now is Ford prices slightly dipping which means we may see a slight correction in GBPUSD.

Gold was an interesting commodity due to the UK holding, storing and importing vast amounts of it. We found that Gold prices have a negative 5% correlation against GBPUSD.

What we're seeing right now is that Gold prices have been rising since August over the past couple months. This should result in a potential downside correction in GBPUSD, however, with the weak correlation this may not happen.

WTI... crude oil is a major commodity that not only the US exports but also the UK exports and purchases from across the world.

What we can gather straight away by just looking at the correlation is that there's a strong positive correlation between WTI and GBPUSD.

The most recent data shows WTI prices rising which could result in GBPUSD following suit.

Make sure to keep an eye on these commodities/ companies over the coming weeks to get a better idea of the trend and confirmation signals.