GBPUSD: Bulls Slowly Surrendering Momentum?
The resilience the GBPUSD bulls are showcasing to stand up and be counted at any given moment is admirable. For example, last weeks beyond expectations UK inflation data sent the GBPUSD bulls into an upside frenzy. As a result of their upside rally, a new 1.7189 yearly high was recorded.
However, the GBPUSD has since recorded five days of consecutive losses for the first time in around four months. Investors have commenced this week seeking safe-havens, like the USD following the unfortunate tragedy in Eastern Europe last Thursday evening. The bearish momentum could also be linked to investors beginning to show impatience at the contradictory messages received from the Bank of England (BoE) regarding the possible timeframe for a BoE rate hike. As a result, there has been indications of investors taking profit on the Cable and if the recent bearish momentum continues, the GBPUSD could be on its way to falling under 1.70 for the first time in nearly a month.
This morning, the latest BoE minutes are released. Unless an unexpectedly hawkish BoE minutes emerges, or word surfaces that one member of the Monetary Policy Committee (MPC) voted for a BoE interest rate increase in July, downside moves towards the 1.7037 and 1.7004 support levels could be on the cards. A break below the latter support would open up the door for a bearish move towards 1.6979, a support level in late June.
With the latest UK Retail Sales being announced on Thursday, optimists will hope this release will defy current low expectations and award the GBP bulls with a reason to rally for once again. Currently, the British Retail Consortium (BRC) are reporting that retail sales in June increased by just an annualised 0.6%, while the Confederation of British Industry (CBI) are reporting that retail sales slowed to a seven-month low.
However, the Football World Cup commenced in June and such an event usually correlates towards increased consumer expenditure. Therefore in similar fashion to last week’s UK CPI announcement, there is an outside chance for retail sales to defy expectations and it would be wise to refrain from ruling out a sudden GBPUSD reversal.
In regards to the technicals, it appears that a short-term bearish trend line has formed on the Daily timeframe. The pair is currently making its way towards the 1.7037 support level, with future support possibly situated at 1.7004. A downside break below this latter support level would pave the way for a move towards 1.6979 and a move here would represent the first time the GBPUSD has fallen below 1.70 in nearly a month.
However as mentioned above, the bearish trend line on the Daily timeframe is in its infancy and with the UK fundamentals proving so consistently strong over the past year, it is likely that this will be just a short-term bear. As we found out a week ago when the UK CPI was announced, the GBP bulls are ready for an upside rally at a moment’s notice. The latest UK GDP is announced on Friday.
Perhaps this will represent an ample opportunity to test the resilience of this bear.
Written by Jameel Ahmad, Chief Market Analyst at FXTM.