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GBP/USD Slips Back as Weak Eurozone Data Favor Haven Greenback

GBP/USD Slips Back as Weak Eurozone Data Favor Haven Greenback

David Cottle, Analyst


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GBP/USD Prices, Analysis, and Charts

GBP/USD slipped a little on Friday

• Weakness in EUR/USD seems to have carried across

• The overall uptrend looks intact however

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The British Pound is weaker against a generally stronger United States Dollar on Friday as weak European economic data underline global growth uncertainties and usher nervy investors back into the haven greenback. The Bank of England’s no-nonsense half-percentage-point rate increase of the previous session beat expectations but, perhaps surprisingly, failed to lift Sterling back above June 16’s fourteen-month highs. The markets fear that the Bank of England may have to push the British economy into recession if it’s to successfully curb domestic inflation which ranks among the most stubbornly high in all developed markets.

That economy has been more resilient than forecasters feared at the start of this year, but that very strength is now boosting inflation and making it more likely that rates will have to climb much further yet. Official data on Friday showed a surprise increase in retail sales, lifted by a warm start to the summer and falls in fuel prices. Despite the BoE’s action this week, Friday’s European currency-market focus has been on the Euro. Woeful Purchasing Managers Index figures for Germany and the broad Eurozone have weighed on the single currency, which has taken Sterling lower with it. Manufacturing activity continued to contract in June, according to the data, with service sectors expanding by at a very much reduced rate.

The Pound could be set for a period of movement with the tides of US Dollar demand rather than trading on its own merits, or lack of them. This is because the coming week offers very few first-tier UK economic numbers. The only major release coming up is the final official snapshot of the first-quarter Gross Domestic Product. This is expected to have been revised lower, to show wafer-thin annualized growth of 0.2%, from an initial 0.6% read.

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GBP/USD Technical Analysis

Chart Compiled Using Trading View

GBP/USD remains a broad upside bias within the ascending channel which began on March 20 and is in any case just an extension of the up-move seen since the lows of September last year. The pair has managed to nose above the channel top in the last couple of weeks, but it hasn’t looked very comfortable there and is now back below it. That channel top now offers resistance at 1.27788.

Near-term support is likely at May 8’s intraday peak of 1.26479 and June 8’s closing high of 1.25219. Below that will beckon the first Fibonacci retracement of the rise to this month’s peaks from the lows of last September. That comes in at 1.22507 and a test of that would mean that the current uptrend had failed comprehensively. Still, there’s little sign so far that it’s going to and the pair likely remains biased higher even if it sees setbacks within the uptrend. They could be quite marked without negating it.

IG’s own sentiment indicator suggests that some pullback and consolidation are likely. Traders on the platform have a modestly bearish bias on Sterling, which is perhaps not that surprising given current elevated GBP/USD levels.

--By David Cottle for DailyFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.