Key Talking Points:
- GBP/USD nearing key support as bearish pressure mounts
- Retail sales drop in May as hospitality reopens
GBP/USD continues to slip lower, breaking below 1.39 for the first time since May 7th. The fall has mostly been caused by a stronger US Dollar on the back of hawkish commentary from the Fed on Wednesday, but GBP fundamentals have also been slacking.
Last week we saw weaker than expected manufacturing data coupled with the delay of up to four weeks of the end of Covid-19 restrictions announced earlier this week. GBP/USD had already been trading at a tight range near three-year highs so the pullback isn’t all that surprising, especially brought on from a rally in the US Dollar. But the pair had attempted to rebound around the 1.3898 area during the Asian session when the latest retail sales data publish this morning brought further selling pressure as it showed how sales in the UK have dropped in the month of May, supposedly swapped for spending on restaurants and pubs now that hospitality is open again.
Meanwhile, UK and EU relations worsen over the dispute Northern Ireland border as the UK asks the EU for an extension of its grace period for chilled meat exports, which could be putting a drag on the pound.
GBP/USD 4-hour chart
Technically, the pullback may start to look overstretched at these levels so I would watch out for some short-term support. 1.3824 – 1.3802 is the range where previous retracements have been halted so we may see buyer support around this area if the selling continues. Looking at the wider picture, GBP/USD continues to show a strong uptrend, with bullish momentum intact as long as the pair holds above 1.3850, at which point the ascending trendline could be broken for the first time since April 2020.
GBP/USD Weekly Chart
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— Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin
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