Fundamental analysis of GBP/USD

The GBP/USD pair came under selling pressure for the fourth consecutive day on Wednesday, declining from a local high of 1.31300 to a weekly low at the psychological level of 1.30000. 

 The US dollar (USD) recovered from a 15-month low and showed positive momentum, reinforcing the GBP/USD downward momentum.  Key US retail sales data excluding motor vehicles, gasoline, construction materials and food services showed a recovery in June, sparking skepticism. It is speculated that the Fed may adopt an accommodative policy to provide some support to the US dollar. 

 However, market participants are reducing the likelihood of a Fed rate hike after an expected 25bp hike at the July 25-26 meeting as US Treasury yields continue to rise. Combined with continued positive equity market dynamics, these factors will put pressure on the safe haven dollar.  US housing data will also be key, as continued growth in building permits and starts should indicate positive sentiment among builders and strong demand from homebuyers. The encouraging numbers may support the idea of a smooth economic correction despite disappointing US retail sales and industrial production data. In the North American session, we will look for clues in the US housing market data, with traders expecting reduced buying in GBP/USD based on the aforementioned fundamental backdrop. 

 In addition, today is an important day for the GBP/USD pair, as UK inflation will take center stage.  The expected Consumer Price Index report could spur higher interest rate forecasts, increasing fears of a possible recession in the UK. A projected drop in the UK's annual inflation rate from 8.7% to 8.2% could prompt the Bank of England to act, even if the economy is at risk. Investors should be wary of the Bank of England's comments, especially with Monetary Policy Committee member Dave Ramsden expected to speak. UK inflation has been trending lower since 2021, with an annualized growth rate of 7.9%, the lowest on record and below the average estimate of 8.2%. This will ease the burden on the Bank of England, which is already struggling with inflation. There is growing speculation that a strong tightening of monetary policy by the Bank of England (BoE) could boost GBP/USD. The Bank of England is likely to raise rates from the current 5% to 6.5% to curb demand and control inflation. Strong UK wage growth data, which Bank of England Governor Andrew Bailey and UK Prime Minister Jeremy Hunt see as unfavorable for controlling inflation. Bailey, while predicting a sharp slowdown in price growth this year, admitted that inflation is still too high. Therefore, the publication of the UK CPI report later on Wednesday will be crucial in shaping the Bank of England's short-term policy outlook and possibly help the Pound rise.

Technical analysis and scenarios:

From a technical perspective, the GBP/USD pair is currently trading at 1.29590, near a key support level. The pair is experiencing downward momentum, as evidenced by the Stochastic oscillator at 10.2910, which is well below the oversold threshold, indicating the possibility of a reversal. The Bollinger Bands indicator indicates that price volatility is likely to increase as the bands widen. Currently, price is dipping below the lower band, hinting at strong bearish pressure. However, the MACD indicator is giving a somewhat mixed signal. Although it is currently positive at 0.000464, the MACD line is below the signal line, indicating a bearish signal. Traders should keep a close eye on these indicators and adjust their strategies accordingly.

Main scenario (BUY)

Recommended entry level: 1.30440.

Take Profit: 1.31340.

Stop Loss: 1.29700.

Alternative scenario (SELL)

Recommended entry level: 1.28350.

Take Profit: 1.27450.

Stop-loss: 1.28800.