- In the last trading session of last week, the GBP/USD was more stable, after the release of better-than-expected British retail sales data, although a number of analysts believe that the sell-off after the release of British inflation in the middle of the week has not yet been completed.
- The losses of the recent bearish correction of the GBP/USD pair reached the support level of 1.2815, its lowest in more than two weeks, and settled around the level of 1.2872 at the beginning of this important week's trading.
According to the results of the economic data, retail sales in the UK increased by 0.7% on a monthly basis in June, exceeding the 0.2% expected by the market and representing an increase from 0.1% in May. On a yearly basis, sales were -0.1%, better than expected -1.5% and for May -2.3%. The Office for National Statistics reported increases in sales across all sectors.
The retail sales data is not top-notch given the market's obsessive focus on the future of UK interest rates which is putting an overwhelming impact on jobs, wages, and inflation figures. However, they will provide insight into the underlying state of the economy and whether consumer-driven inflation could be something the BoE should be wary of when crafting upcoming decisions.
Sterling has been taking losses recently as markets quickly reduced expectations of a 50bp hike in the BoE policy decision on August 03 to odds of up to 40%, after seeing such a move as a sure bet just last week. The peak bank rate is now expected to be closer to 5.85% than the 6.5% expected earlier in June. A supportive development for the economic outlook in the UK but not supportive for the Sterling in the near term.
HSBC analysts are looking to express a bearish view of the GBP in the short-term versus non-USD currency pairs which will be less exposed to volatility in the broader risk sentiment. According to the bank's analysts, they have recently opened up business ideas to sell the pound sterling against both the euro and the Norwegian krone. The inflation reading is likely to make it difficult for the Bank of England to push ahead with a rally as strong as market prices, especially since broader activity data has begun to disappoint over the past month.
HSBC also notes that sterling was showing some signs of overvaluation after continued outperformance in 2023.
GBP/USD Technical Outlook
The price of the GBP/USD pair has now declined, to trade several levels below the 100-hour moving average line. As a result, it appears that the currency pair is about to drop to the oversold levels of the 14-hour RSI. In the near term, according to the performance on the hourly chart, it appears that the GBP/USD is trading within a sharp descending channel formation. This indicates a strong short-term bearish bias in market sentiment.
Therefore, the bears will be looking to extend the current range of declines towards 1.2833 or below the 1.2789 support. On the other hand, the bulls will target short-term profits around 1.1917 or higher at the 1.2962 resistance.
In the long term, and according to the performance on the daily chart, it appears that the GBP/USD is trading within a bearish channel formation. This indicates a significant long-term bearish bias in market sentiment. Therefore, the bulls will target long-term profits at around 1.2998 or higher at the resistance of 1.3142. On the other hand, the bears will be looking to extend the current decline towards 12739 or below to the 1.2600 support.
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