GBP/USD Under Persistent Pressure
GBP/USD has been selling off aggressively since early May. Although there has been some headline driven rallies in the early week, they have been short-lived. Sterling is the weakest currency for the week and for the month thus far. Against the greenback, the Pound is down just over 4% as measured from a high posted early in the month. Over the last 13 sessions, GBP/USD has only managed to close two days in the green, however, both those days saw only marginal gains. Buyers will be reluctant to step in considering the absence of a catalyst. At the same time, recent price action points to a one-way market which increases the risk of a stop run higher. The risk to reward for longer-term traders is deteriorating at current levels but short term traders will tend to continue focusing on the downside until a technical reversal or a shift in fundamentals materializes.
Sterling is Particularly Sensitive To Headline News
Consumer price inflation was reported to rise 2.1% on an annual basis, which was slightly below the analyst forecast, while core prices rose in line with expectations. Yesterday’s data release did not have much of an impact on GBP/USD as Brexit developments are driving the pair and will likely continue to do so. In this context, tomorrow’s UK retail sales report may have a smaller market reaction than usual.
British Prime Minister Theresa May is expected to announce her resignation data as soon as Friday and traders will be actively monitoring their news feeds as this announcement will have an impact on the exchange rate. Pressure for her to announce her departure increased yesterday after her latest proposal entertained the idea of a second referendum. The proposal led to outrage from some members of parliament and resulted in the resignation of House of Commons leader Andrea Leadsom who has lost faith that an EU exit will materialize.
On an hourly chart, the downtrend remains quite clear as a descending trend channel has encompassed price action for most of the month. Major resistance for the remainder of the week is found at 1.2677. It will take a break above the level as well as above the upper line of the channel to signal a reversal of trend. A confluence of support is seen at the lower bound of the channel as it intersects with a horizontal level at 1.2575. This is an area that could trigger some profit taking and potentially a reversal in the event a test of the area aligns with a shift in fundamentals.
For the session ahead, the 15-minute chart below shows initial resistance at 1.2624 which reflects yesterday’s spike low. A break above it targets 1.2648 which has been respected as both support and resistance. The latter level is considered to be major resistance for the day. The main area of interest to the downside falls at 1.2575 as mentioned above.