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Forex Analysis & Reviews: GBP / USD: Sales in trend, the pound is still vulnerable
time 26.07.2019 09:19 AM
time Rilevanza fino a, 26.07.2019 08:47 PM

The correction of the GBP/USD pair has ended. The price went only into the area of the 25th figure barely beginning for only a few hours and immediately attracted the attention of sellers. First statements of Boris Johnson in the role of the Prime Minister did not surprise anyone, however, they reminded about the impending "X hour" on October 31, when Britain should leave the ranks of the European Union. At the moment, there are no prerequisites for the implementation of a civilized scenario. Again, the Europeans refused to revise the terms of the deal while Johnson reiterated that he would not ask for another postponement of the negotiation process. Traders can only wait for political battles in the House of Commons, whose deputies will try to prevent the chaotic Brexit.

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At the moment, the pound is deprived of any support, both from political factors and from macroeconomic releases. The Bank of England also "tied" its next steps to Brexit, so any step towards the "hard scenario" is also a step towards softening the parameters of monetary policy by the British regulator. In the same way, the dynamics of key indicators leaves much to be desired, particularly British inflation remained at the level of 2% in June (in annual terms), and in monthly terms fell to zero. The released British inflation remained at the level of 2% in June (in annual terms), and in monthly terms fell to zero. British labor market data released last week turned out to be rather contradictory. The unemployment rate remained at around 3.8%, while the number of applications for unemployment benefits jumped to 38 thousand. However, the negative effect of the release leveled the data on the growth of wages. This figure rose to 3.4% percent in annual terms, giving weak support to the pound.

However, macroeconomic statistics (even key ones) play a secondary role for the GBP/USD pair. Brexit remains the priority and during periods of relative silence, American events are in the center of attention. By the way, the last correctional growth of the pair was due solely to the devaluation of the dollar, which was under pressure due to the publication of weak corporate reports in the United States. Against the background of a half-empty economic calendar, the American currency followed the main stock indexes, which in turn reacted to the fall in shares of Tesla, Ford, Boeing, Caterpillar, and some other market giants.

The weakness of the greenback was short-lived. Yesterday the dollar began to recover its position, especially after the release of data on orders for durable goods. The indicator turned out to be better than expected (much better), thereby reducing the likelihood of aggressive monetary easing by the Fed. Thus, the total volume of orders rose to 2% after a decrease of 2.3% in May. This is the strongest indicator growth rate since August last year. Without taking into account transport, this figure also showed a positive trend, which has been the best result since last April rising to 1.2%.

Let me remind you that not so long ago (at the beginning of last week), dollar bulls were pleased with the data on retail sales in the United States. Contrary to negative forecasts, indicators of consumer activity have not decreased but in fact, remained at the level of the previous period. The overall figure, as well as the figure excluding car sales, grew in June by 0.4% with a decline forecast to 0.1%. The indicator, excluding auto and fuel sales, has been growing for the second month in a row and reaches 0.7%.

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Against the background of the growth of key macroeconomic indicators (strong Nonfarm and positive dynamics of inflation), these figures provided substantial support to the dollar. I would like to note that Jerome Powell, in the course of his speeches and without this release, stated the intensification of consumer activity. He associated the main risks for the Fed with other factors (first of all, we are talking about geopolitical risks and reducing the volume of business investments). Nevertheless, the published data leveled the market's concerns about a rate cut of 50 basis points already at the time of the July meeting. Meanwhile, traders are 100% likely to estimate the chances of a rate cut in July - but by 25 points.

Thus, the US currency at the moment feels quite comfortable: dollar bulls do not pretend to rally (as uncertainty regarding the July meeting still persists), but they do not give up their positions. The pound is "stable" under the yoke of a negative fundamental background, which is determined by the prospect of a "hard" Brexit. All of these allow us to consider short positions in GBP/USD pair for any corrective growth. Although today, you should not rush into sales - at least until the release of data on the growth of the American economy. If the indicator disappoints investors, the pair will go for correction again, giving traders the opportunity to open sales from a higher position.

The priority of the downward movement is also confirmed by the technical picture. On the daily and weekly chart, the pair is between the middle and lower lines of the Bollinger Bands indicator. This indicates a downward trend. Also, the price is under the Kumo cloud and under all the lines of the Ichimoku indicator, which is another argument for sales. The support level is at 1.2400. If the pair still goes below the 24th figure, the next price target will be target 1.2330, which is the bottom line of the Bollinger Bands indicator on the weekly chart.

Irina Manzenko,
Esperto analista di InstaForex
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