GBPUSD – Cable drops to a new yearly low

After a rollercoaster couple of weeks, the twists and turns on the GBPUSD journey finally showed some signs of slowing down last week. Saying that, the GBPUSD still dropped to another yearly low on Wednesday morning at 1.5589 as investors priced in a dovish Bank of England (BoE) Minutes release. On Thursday, the pair received a boost when UK Retail Sales increased by an annualised 4.6% and this resulted in the GBPUSD climbing as high as 1.5721. Although expectations for an upcoming interest rate rise have been pushed back for up to a year and there are signs of UK economic momentum slowing as the BoE previously suggested, the robust retail sales performance is a reminder to investors that the UK fundamentals remain strong.

The problem with the GBPUSD at the moment is that with optimism for an interest rate hike next Spring now appearing to be nothing other than wishful thinking, and with the UK general election campaigns for next May are starting to get attention, investor attraction towards the GBPUSD is limited. In order for the pair to continue its decline, it would either require further signs of UK economic momentum slowing down or increased demand for the USD. Although both shouldn’t be ruled out, some sort of consolidation for the pair after such a period of heavy selling seems more likely. With investor attraction to the GBP being low, USD weakness would be required for the pair to move to the upside.

In reference to the technicals on the Daily timeframe, the GBPUSD is continuing to trade in the same falling wedge pattern it has found itself inside recently. If profit-taking on the USD encouraged the pair to move to the upside, resistance can be found located around 1.5712 and 1.5736. Downside movement can find support around 1.5626 and 1.5589.

Written by Jameel Ahmad, Chief Market Analyst at FXTM.

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