GBP/USD Nudging Higher Towards 1.40 as FTSE 100 Builds Strong Momentum Ahead of BoE
Key Talking Points:
- GBP/USD finds support to attempt a new break higher
- FTSE 100 back within yearly-high range as momentum builds
GBP/USD is attempting to rebound towards 1.40 after Friday’s session brought the pair below 1.39 after an impressive rally the days before. The Bank of England is likely to be a head-turner later this week as markets are now positioning themselves for a more hawkish meeting, suggesting even a split vote to keep monetary policy unchanged.
Given how an actual change is unlikely, investors will have to dig into the statement to figure out what the bank’s positioning is after 6 weeks of mixed emotions. So far, the economic data has been showing meaningful progress towards recovery but recent figures are suggesting a possible stagnation of growth, with both retail sales and consumer inflation coming in weaker than expected in June, and PMI data showing a loss in confidence from industry professionals.
The resurgence in Covid cases both in the UK and in Europe is likely one of the reasons for this slight pullback in confidence in the economic recovery but this impact is expected to be limited as the country continues to have one of the highest vaccination rates so far.
GBP/USD Daily chart
The V-shaped bounce we’ve seen over the last few sessions has managed to complete the bounce higher but end-of-month flows on Friday helped the US Dollar recover some ground. So far the pair is lacking some momentum at the start of the week as it attempts to consolidate above 1.39 with 1.40 in sight. But GBP/USD is likely to find increased resistance between 1.3940 and 1.3965 before facing last week’s high at 1.3984. The pair has been struggling to break the 1.40 mark since the 17th of June so it may take some further momentum build-up for buyers to actually achieve a break higher. If so, 1.4075 is likely to offer renewed resistance. Alternatively, a break below 1.3885 would put the pair at risk of another pullback with 1.3824 – 1.3802 being the strongest test of support so far.
FTSE Daily Chart
Meanwhile, there continues to be a lot of indecision in the stock market but indices are unwilling to let go of recent highs. The FTSE 100 is back trading within its recent yearly-high range after its recent pullback caused a bounce off the 200-DMA, just 8 points above the 6,800 mark. The session has started on a strong foot so far with the UK index up 1% from the opening and powering towards the upper bound of the range at 7,122. This area is likely to offer some resistance but with strong momentum building, we could see the FTSE 100 battling resistance at the recent highs around 7,170 in the next few days.
--- Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.