GBP is struggling to defend a key support level. Major inflation and jobs data from the UK, along with US inflation data, will determine whether GBP sinks lower against the dollar this week.
The UK and US make several important data releases this week (times are GMT+1):
Tuesday 17th May: UK CPI (0930) and US CPI (13.30)
Wednesday 18th May: UK Earnings, claimants and unemployment data (09.30) and US FOMC Minutes (20.00)
Thursday 19th May: UK Retail Data (09.30) and US Manufacturing (13.30)
Of these releases, CPI has significant ability to move the market with US and UK releases within a few hours of each other. UK Employment data Wednesday will attract attention if it delivers a big beat or miss, and FOMC minutes could increase speculation around the June Fed meeting decision.
Due to bearish Brexit sentiment we may see bad UK economic data being magnified and positive news having a limited effect, as we saw after the BOE meeting last week.
Recent reports state that foreign investment in the UK is being postponed pending the Brexit referendum outcome. This has the potential to lead to UK data missing expectations.
Considering the technically precarious position of GBPUSD and the negative sentiment generated by Carney’s warnings around Brexit discussed last week, poor UK data could reinforce the bearish trend.
GBPUSD is currently clinging on to the lower end of a zone of support a little below 1.44 (possibly since the market is awaiting this week’s economic data, which could spell a big move when it is announced).
In the bulls’ favour, the daily and H4 stochastic are both oversold with the Daily starting to roll under. Combined with positive economic data this scenario might just support a bullish reversal (Chart A) with the potential to target the 1.47 resistance level although based current sentiment that would require a big beat by UK data and a miss for US CPI.
There is also a mini “fib war” in play with a bullish 38.2 retracement reached on the daily up trend, versus a bear retracement set out below (Chart C) which supports staying out of the market until direction is clarified.
Mediocre or negative UK data would make the bear scenario a strong possibility (Charts B and C):
- Friday’s price close below the daily 55
- Weekly and daily trend is bearish, price gapped down a little over the weekend, the gap has been filled prior to the London open and we will see if price resumes its mission south in the London session.
- The support zone finishing just below 1.44 is now virtually broken.
- The weekly stochastic is approaching overbought.
- Price rode downwards below the hourly 5 and 8 for most of Friday.
- Price is fulfilling a bearish fibonacci retracement and extensions based on the May 3rd high and May 9th low which implies a target of 1.41 (chart B).
A break through current support would have a fairly clear path to the 1.41 psychological and previous support level.
GBP support will be tested by US and UK data this week. The trade plan should be to await clarification on the trend with a general expectation that the bear trend will continue unless the UK delivers some outstanding economic data.