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GBP/USD Outlook: Post-UK CPI Weakness Spurs Test of Former Resistance

By :   David Song , Strategist (Former)
July 20, 2023 7:20 PM

British Pound Outlook: GBP/USD

GBP/USD remains under pressure following the larger-than-expected downtick in the UK Consumer Price Index (CPI), and a close below the former-resistance zone around the June high (1.2848) may lead to a larger decline in the exchange rate as the Relative Strength Index (RSI) continues to come off of overbought territory.

GBP/USD Outlook: Post-UK CPI Weakness Spurs Test of Former Resistance

GBP/USD weakens for the fifth consecutive day amid the failed attempt to test the April 2022 high (1.3167), and the British Pound may face headwinds ahead of the Bank of England (BoE) interest rate decision on August 3 amid forecasts for a slowdown in private-sector spending.

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UK Economic Calendar

FOREX.com Economic Calendar

UK Retail Sales are projected to increase 0.2% in June following the 0.3% expansion the month prior, and signs of easing demand may lead to a greater dissent within the BoE amid the 7 to 2 split at the June meeting.

Nevertheless, a positive development may curb the recent selloff in GBP/USD as the BoE pledges to ‘ensure that CPI inflation returns to the 2% target sustainably in the medium term,’ and it remains to be seen if the majority of the Monetary Policy Committee (MPC) will vote for a more restrictive policy as ‘contacts of the Bank’s Agents had reported that consumer demand had been more resilient than they had expected across both goods and services.’

Source: CME

Until then, the Federal Open Market Committee (FOMC) interest rate decision on July 26 may sway GBP/USD as the central bank is widely expected to deliver a 25bp rate-hike, but market participants may pay increased attention to the forward guidance for monetary policy as the Fed appears to be nearing the end of its hiking-cycle.

With that said, GBP/USD may face a larger pullback ahead of the Fed meeting as it carves a series of lower highs and lows, and a close below the former-resistance zone around the June high (1.2848) may lead to a larger decline in the exchange rate as the Relative Strength Index (RSI) continues to come off of overbought territory.

British Pound Price Chart – GBP/USD Daily

Chart Prepared by David Song, Strategist; GBP/USD on TradingView

  • The bull-flag formation from last month appears to have run its course amid the failed attempt to test the April 2022 high (1.3167), with the Relative Strength Index (RSI) indicating a textbook sell-signal earlier this month as it fell back from overbought territory to push below 70.
  • The recent series of lower highs and lows has pushed GBP/USD up against the former-resistance zone around the June high (1.2848), and a close below the 1.2850 (61.8% Fibonacci extension) to 1.2900 (23.6% Fibonacci retracement) region opening up the 1.2750 (50% Fibonacci retracement) to 1.2760 (61.8% Fibonacci retracement) area.
  • Next region of interest comes in around the monthly low (1.2723), but lack of momentum to close below the 1.2850 (61.8% Fibonacci extension) to 1.2900 (23.6% Fibonacci retracement) region may bring the 1.3000 (78.6% Fibonacci extension) handle back on the radar.

Additional Market Outlooks

Euro Forecast: EUR/USD Pullback Triggers RSI Sell Signal

USD/JPY Reverses Ahead of 200-Day SMA to Halt Six-Day Selloff

--- Written by David Song, Strategist

Follow on Twitter at @DavidJSong

 

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