GBP/USD: Weak UK GDP to help USD regain momentum? June 12, 2019

Source: Forex Analysis

GBP managed to gain momentum and sustain it quite well over USD recently. After impulsive bearish pressure, the price is making pullbacks.

Due to contraction in the UK GDP and a slowdown in the manufacturing sector, GBP is expected to lose momentum in the coming days. Bank of England official Gertjan Vlieghe recently stated that risks to the economy had deteriorated since the British central bank published its most recent forecasts in May and worse-than-expected economic data made the UK economy lose momentum. Mr. Vileghe expressed hopes that the UK economy would gather speed despite global trade tensions and continued uncertainty about Brexit.

On the Brexit front, there are still concerns that leaving the European Union on Oct. 31 without any transition deal would be a major economic shock. So, businesses would be unable to prepare for the long-term consequences. Recently Saunders from Monetary Policy Committee stated that there are possibility of interest rates going either way, due to the risk of a weaker pound and a major shock to Britain’s supply capacity that would spur inflation. However, financial markets reckon that the BoE is more likely to cut rates to support economic growth after a disruptive no-deal Brexit.

Recently, UK Average Cash Earnings report presented a better than expected value of 3.1% versus 3.3% in the previous month. But Claimant Count Change report was published with a negative result of an increase to 23.2k from the previous figure of 19.1k which was expected to decline to 12.3k. Bank of England’s Governor Carney is going to speak on Friday. His speech is expected to make a good impact on the upcoming momentum of GBP.

On the USD side, the US is due to release a retail sales report on Friday. Analysts have optimistic expectation, so retail sales could have risen to 0.7% from -0.2%. If the forecast comes true, USD could regain momentum over GBP at the end of the week. Recently US PPI report was published with a decrease to 0.1% as expected from the previous value of 0.2% but IBD/TIPP Economic Optimism dropped to 53.2 from the previous figure of 58.6 which was expected to grow to 59.2.

There are three weeks to go before US and China’s leaders meet for the trade talks. Investors have low expectations for progress toward ending the trade war. The parties have made little preparation for a meeting even under the conditions that the health of the world economy is at stake. US President Donald Trump recently defended the use of tariffs as part of his trade strategy while China pleged to make a tough response if the United States insists on escalating trade tensions. Moreover, President Trump is again taking a dig on Federal Reserve’s monetary policy which he believes is to blame for the lack of economic progress in the US.

To sum it up, the UK discouraged investors with weak GDP, thus causing negative market sentiment on GBP. The upcoming economic reports from the US will show whether USD can regain and maintain the momentum over GBP.

Now let us look at the technical view. The price is currently trading inside the corrective resistance range between 1.2700-50 from where it has greater probability to move lower following the overall bearish trend. The price is currently being held by 20 EMA as resistance. Confluence to the overall price action bearish context is expected to push the price lower towards 1.2500 support area in the coming days as the price remains below 1.30 area with a daily close.

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The material has been provided by InstaForex Company – www.instaforex.com