GBP/USD seeks direction within sustained bearish trend

GBP/USD has been confined in a trading range between its 200-day moving average to the upside and 50-day moving average to the downside for the past month as the currency pair has been seeking direction ahead of a few major events next month. The fact that price has remained below its 200-day moving average, however, continues to underscore the overall bearish trend that has persistently defined GBP/USD.

With exactly one month left to go before the UK holds a referendum that will decide whether or not it stays in the European Union, the British pound has generally remained resilient in the face of substantial downside risk to the currency that would very likely result from a successful "Brexit" vote. This resilience has largely been due to recent polls in the UK that have shown increasing support for remaining in the EU and decreasing sway from the "leave" camp. Aside from the Brexit issue, last week saw mixed data out of the UK, including a lower-than-expected inflation reading in the form of the Consumer Price Index, and better-than-expected numbers for average earnings, unemployment claims, and retail sales.

On the other side of the pond and the currency pair, the US dollar has surged and continues to stay well-supported due to hawkish minutes from April’s FOMC meeting and other comments from Fed members last week. These Fed signals stressed more strongly than usual the high likelihood of an impending interest rate hike that would be contingent, of course, upon continuing improvement in economic data. With recent US data indeed showing positive signs for economic growth, employment, and inflation, markets have increasingly come to lean towards anticipating a potential rate hike either in June or July.

This week has in store important data releases from both the UK and US that could have a significant impact on the current fundamental environment for the pound and dollar. In the UK, Parliament’s inflation report hearings will take place on Tuesday, and revised GDP (second estimate) is slated for Thursday. In the US, the primary release will be Friday’s preliminary GDP (second release), which should have a substantial impact on the Fed’s consideration of current US economic growth, as well as durable goods orders and weekly jobless claims on Thursday.

From a technical perspective, GBP/USD continues to display a long-term bearish trending bias, as it continues to trade under both its 200-day moving average and a key downtrend line extending back to the August high of last year. This month, the currency pair has already attempted to rise above these dynamic resistance factors twice but has turned back to the downside both times. Currently trading under the 1.4500 level, GBP/USD should continue to be pressured as long as it remains below the noted resistance. This pressure could be especially strong in an environment of increasing expectations of a near-term Fed rate hike as well as the still-present specter of a possible Brexit. With any further retreat from the 200-day moving average and the noted downtrend line, the major downside target remains at the 1.4000 psychological support level.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.