After dropping to its 5-week lows yesterday at 1.2164, GBPUSD has managed to recoup some of its losses. As of this writing, the currency pair is trading around 1.2214. Will it trade higher or lower on the back of today’s US retail sales report?
Weakness in the British pound was brought about by concerns surrounding the UK’s increasing debt levels. My colleague Nikolas Papas reported that the country’s debt is projected to reach 273 billion GBP this year. With the economy shrinking at its fastest pace by 5.8% in March, the outlook for the UK seems pretty grim.
Later on in yesterday’s New York session, GBPUSD was able to retrace some of its losses after the disappointing jobless claims report from the US. Dollar weakness ensued after investors questioned which country between the UK and US has a worse outlook for 2020. Today, the spotlight will again be in the US with the retail sales report for April. Due at 1:30 pm GMT, the headline figure is seen to contract by 12% while the core reading is seen at -8.6%.
On the 1-hour time frame, GBPUSD can be seen trading in the middle of a descending channel (when connecting the highs and lows from May 8). This means that near-term resistance and support would be at the top and bottom of this channel. Any upward movement would be limited around 1.2272 where the top of the channel, 100 SMA, and 61.8% Fib level (drawing the FIbonacci retracement tool from the high of May 13 to the low of May 14) coincide. If there are enough buyers in the market, we could even see GBPUSD rally higher to 1.2340 where the 200 SMA is.
On the other hand, if sellers dictate the market’s direction, the currency pair could fall to near-term support at 1.2145.