Fundamental analysis of GBP/USD

GBP/USD is seeking to maintain its position above the key support level of 1.2700. Although the policy gap between the Fed and the Bank of England has closed, market expectations suggest that this support level has been broken. 

 S&P 500 futures contracts fell significantly during the European session as market sentiment turned negative. Investors are concerned about global growth as central banks raise interest rates and lower their risk appetite. 
 Here, the U.S. Dollar Index (DXY) is showing strength thanks to market sentiment related to risk aversion. The index hit a daily high of 103.00, further dampening cable sentiment. Going forward, investors will focus on preliminary U.S. S&P data for June, especially the manufacturing PMI, which is expected to rise to 48.5. In contrast, the services PMI is expected to fall to 54.0. 
 
 Despite Bank of England governor Andrew Bailey unexpectedly raising interest rates by 50 basis points, the pound did not rise. The rise was driven by continued high inflation in the UK, where the core consumer price index (CPI) reached a new high of 7.1% despite the tightening of monetary policy. Markets are generally predicting another Bank of England rate hike, helped by better-than-expected UK retail sales figures. 

 The latest monthly economic data showed an increase of 0.3%, which surprised markets who had expected a 0.2% decline. Retail sales also declined year-over-year, but by 2.1% less than the 2.6% decline expected. 

 It will be a busy day for GBP/USD as UK retail sales data for May and preliminary private sector PMI for June will be released. A positive outlook and rising retail sales could reinforce expectations of additional rate hikes. Investors should keep a particularly close eye on the service sector PMIs and look beyond the usual numbers for factors such as employment, new orders and inflation. 

 A rebound in service sector activity and a decline in retail sales may ease the pressure on the Bank of England. A speech from a member of the Monetary Policy Committee is not part of the plan, but we should keep an eye on the Bank of England's comments. Thus, media discussions may play an important role in shaping market sentiment. 

 This morning the GfK UK consumer confidence index rose to -24 from -27. However, general risk aversion has overshadowed this increase in confidence. Concerns about economic growth have affected risky assets and the GBP/USD pair.

Technical analysis and scenarios:

The Bollinger Bands indicator, which is pointing downward, indicating bearish sentiment. The price range is widening slightly and the price is currently correcting towards the indicator's lower band at 1.26970.

Should there be a positive surprise in UK retail sales data and preliminary private sector PMI data, the GBP/USD pair may experience a temporary upward move.

If the downward pressure persists and the support level of 1.26340 is broken, the bearish momentum may accelerate.

Recommended entry level (BUY): 1.27400.

Take Profit: 1.28280.

Stop loss: 1.26900.

Recommended entry level (SELL): 1.26900.

Take Profit: 1.25380.

Stop loss: 1.27550.