Chart of the Day GBPUSD
GBPUSD Potential Reversal Zone - Probable Price Path
Last week was a volatile one in markets. Equities in particular continue to be buffeted between signs of improving economic conditions as lockdown restrictions ease against concerns that covid-19 cases are rising again in some countries. Following last week’s sharp sell-off in equities, many markets started this week down amid reports of new coronavirus cases in Beijing and an acceleration of cases in a number of US states. However, confirmation from the Fed of its intention to buy corporate bonds and reports that the US government is considering a $1trn infrastructure spending boost helped push US equities up earlier in the week.
GBP: UK 10-year gilt yields have risen above 0.25% from 0.19% despite the Bank of England’s announcement of a further £100bn of asset purchases. The market may have been disappointed that the QE increase was not even larger and the BoE’s intention to taper the pace of its purchases from here. No mention in the Bank’s communications of the possibility of a move to negative interest rates may also have contributed to the sell-off, although BoE Governor Bailey subsequently reiterated that he wasn’t ruling out any policy options. Some reports suggest that growing concerns about the lack of progress in UK-EU talks around the future relationship may be helping to drive down the pound. UK PM Johnson after talking to the EU Commission President this week said that he saw no reason why a deal couldn’t be done by the end of July. Nevertheless, concerns about the situation seem to be rising in markets as we head into the second half of the year
USD: More timely economic data continue to point to economic conditions improving as lockdown restrictions are eased. Most notably, in the past week were much larger than expected rises in May retail sales in both the UK (up 12%) and the US (up 17.7%). The US also saw pickups in both industrial production and housing starts in May. With restrictions continuing to be eased, June data will be watched for further signs of improvement. The coming week sees a number of June updates including ‘flash’ PMIs for the UK and the US. The May releases saw sizeable pickups in headline indices for both manufacturing and services, from their April lows, across all three. Crucially, however, all the data remained below the key 50 level that is supposed to signal an expansion in activity. In the US, the big bounce in May retail sales is predicted to translate into a sharp rise in overall consumer expenditure. Other areas of spending are likely to have been much weaker. In particular, many consumer service providers, which account for a large part of overall spending, continue to be locked down. Nevertheless, we still look for a strong monthly rise of 9.0%. The advanced international trade report and durable goods (both Thu) will provide further information on May trends. Both are expected to show improvement from very weak April outturns.
From a technical and trading perspective, the GBPUSD has achieved its minimum corrective objective test, the equality target at 1.2343. Buyers have stepped in this morning however we will need to see a close back through Fridays highs at 1.2456 to encourage bullish exposure. If this close price objective is achieved bullish exposure should be rewarded setting up a test of 1.26 initially, through here and bulls will press for a test of descending trendline resistance sighted towards 1.28. A close today back through Friday’s lows will negate the bullish thesis and we likely probe lower to test 1.2134.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!