GBP/USD Analysis: Breaking the 1.30 high is still difficult
- The recent trades show that the progress of GBP/USD exchange rate has temporarily halted near the psychological resistance barrier of 1.30 after the release of U.S. retail sales numbers, which exceeded consensus.
- Profit-taking could extend if UK inflation numbers fall below the desired level tomorrow.
- Concurrently, the pound had fallen from its recent highs against the US dollar after the US retail sales report exceeded consensus.
According to reliable trading platforms, the GBP/USD pair fell by 0.20% during the day to 1.2940 after retail sales recorded a flat reading of 0% on a monthly basis in June, while expectations indicated a reading of -0.3%. also, Core retail sales rose by 0.4%. Clearly, this exceeded estimates by 0.1% and represents a supportive surprise for the US dollar.
Commenting on the event and the impact. “Today’s data is another reminder that you can never write off the US consumer,” said Ali Jafari, an economist at CIBC Capital Markets.
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According to forex trading, the pound rose 2.50% against the dollar in July, on the cusp of levels last seen at this time a year ago, supported by rising expectations of a September rate cut. It will likely take a series of strong convincing data to reverse the course of a September cut. Furthermore, analysts say “will stronger consumption change the balance of evidence for the Fed and signal that demand in the economy could be picking up? We don’t think so. The accumulation of evidence showing inflation and a slowing labor market would be more than enough to convince the Fed to cut rates in September.”
Overall, the data shows that the exchange rate’s advance has stalled just six points short of the psychological resistance level of 1.30, which would be consistent with sell orders being placed ahead of the big mark. The July 2023 high is at 1.3142, but the pound was unable to hold these levels for very long.
In fact, what followed this high was a three-month decline that took the pair back to 1.2037. “The 1.3000 level is acting as resistance and keeping GBP/USD lower,” says Dukascopy’s technical analysis note.
The question now is: Will we see a repeat of the fall of 2023, or will the pound’s rally have the ability to hold on and build on recent gains?
For now, analysts believe that any setbacks are likely to be shallow. Dukascopy’s analysis shows that the 50-hour simple moving average could provide the support needed for the price to move above 1.3000. Added, “Above 1.3000, we could face resistance at the weekly R1 level at 1.3058 and the 1.3050 level.”
Looking ahead, the next moves in GBP/USD are likely to be driven by UK data. The risks to sterling are also asymmetric: after a strong rally, we see the GBP and other GBP-based exchange rates now in overbought territory as markets see less chance of a BoE rate cut in August this year than they did at the start of July.
Overall, if UK inflation is below expectations, the odds of a cut on 1 August will increase again, taking more heat off the GBP rally. For now, we expect weakness to be relatively contained and consistent with easing overbought conditions.
Furthermore, services inflation is forecast at 5.6% and CPI inflation is forecast at 2.0%. Any depreciation would increase the odds of a rate cut on 1 August and lead to a sharp drop in the GBP value from overbought territory. Meanwhile, analysts at Oxford Economics believe that the headline CPI inflation rate will be 1.8%, which would be lower than expected and would lead to a sell-off in the pound.
Technical forecasts for the GPB/USD pair today:
The GBP/USD exchange rate continued its strong upward march after the relatively dovish Fed statement and ahead of the upcoming UK inflation data. It has risen for three consecutive days and moved to the psychological level of 1.300, its highest swing since July 2023. The GBP/USD pair continued its strong rise after Monday’s statement by Jerome Powell, the Fed Chairman. In his statement, Powell welcomed the US inflation figures over the past three months, which showed stable prices. Powell is comfortable cutting interest rates this year if inflation continues to decline, although it is still above 2.0%. Now, the Fed seems more concerned about the labor market, which has weakened in the past few months.
The daily chart shows that the GBP/USD pair has been moving in a strong uptrend for the past few weeks. Recently, it flipped the crucial resistance point at 1.2830, which is the neckline of the inverse head and shoulders pattern. Also, it rose above the 78.6% Fibonacci retracement point at 1.2905. The pair also moved above the upper side of the XABCD pattern, which is a bullish signal. Technically, the price remains above the 50-day and 100-day moving averages. At the same time, the Relative Strength Index (RSI) has moved into overbought territory. Therefore, it is likely to the pair will review and retest the support at 1.2893 and then resume the uptrend. If this happens, it will eventually retest the resistance level at 1.3100.
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