GBP/USD: surprising resilience (video)
By Kira Iuhktenko, FBS analyst
We observed the long-awaited correction in GBP/USD last week. The cable retraced from the July 4 peak of $1.7180 and touched $1.7090.
The move down was triggered by rather weak UK economic data released on the week, including an unexpected slump in manufacturing output and weak Halifax HPI. Thursday added more reasons for concerns: we’ve seen a larger-than-expected UK trade deficit for May. As widely expected, the Bank of England left monetary policy unchanged on Thursday. All these news decrease market expectations for a sooner rate hike in Great Britain.
However, the bearish attack was not persuasive at all: the British pound refused to stay below the $1.7100 mark. Low US bond yields keep the demand for USD limited. We view the current decline of the pair as a temporary correction and recommend using the dips as a buying opportunity. The bullish target for the coming weeks lies at $1.7320. The monthly chart is clearly showing how bullish the technicals are. Support lies at $1.7060, $1.7000, $1.6950 and $1.6900.
Next week there will be a lot of potentially market-moving releases both in UK and in US. Watch the UK inflation and employment data to estimate the chances of a premature rate hike in Great Britain.