The GBP/USD currency pair retreated on Monday before bouncing back on Tuesday after the greenback stayed firm to recover against all major currencies. The US Dollar had weakened last week to trigger an unexpected resurgence in the GBP/USD currency pair but following some positive U.S. yields reported early on Monday the pair made a corrective pullback to trend towards the 1.3100 level. However, a rebound was on again on Tuesday as the pair climbed traded towards the 1.3150 level.
This illustrates the level of uncertainty in the market with trade war fears continuing to drive speculation. Tuesday’s rebound, which indicates some Sterling strength is seen to be driven by U.K. Prime Minister Theresa May’s recent comments after she said that she will take control of Brexit negotiations.
Technical analysis
The immediate future as to where the pair will head remains relatively choppy, but the bearish outlook is expected to continue albeit with notable pullbacks and rebounds along the way. The pair has been trading within a downward trending channel and it increasingly looks like it will remain within the confines of that channel for the next couple of weeks.
So, what does this mean for traders? Well, for bullish traders looking to target short-term trading opportunities, there are a few that look interesting over the next few days and into early August 2018. The hourly chart below paints a clear picture of what to look for going into Wednesday.
Looking at the hourly chart above, the bulls can target short-term profits at (R1-1.3150), which is the most immediate resistance point following the recent rebound, or at (R2-1.3200), which has been a key resistance zone over the last few months.
On the other hand, the bears will be looking to pounce for profits at key support level (S1-1.3080) or (S2-1.3050) for short-term trading while (S3-1.3000) is a realistic intermediate target assuming the greenback regains control of the pair.
Expanding the time frame to the 4-hourly chart seems to confirm the same trading targets, but there are more revelations that suggest anything could happen.
As demonstrated on the 4-hourly chart below, the GBP/USD currency pair has failed to touch the upper limit of the downward trending channel on two occasions over the last four weeks and this suggests that the same could happen before the end of the month.
As shown on the chart above, the GBP/USD currency pair failed to touch the downward trending upper limit of the bearish channel at around 1.3380 and again at around 1.3240. Based on the current trajectory, the expectation from a swing trading perspective is that the pair could touch the upper limit of the bearish channel again at around the 1.3200 region, potentially before the end of the month.
However, with those two previous rejections, it is not inconceivable to foresee a situation where the pair rejected 1.3200 and instead forms another solid resistance zone at the 1.3150 level. Illustratively, this is the point at which the pair pulled back on Monday, and on Tuesday, it rallied again to trade within a few pips of that level. That’s why the bears could be more optimistic going into Wednesday and perhaps even next week as more room appears to be available due south of the curve.
Fundamental analysis
In the most recent UK CBI Industrial Trends survey, new orders continued to expand after the report showed an actual index figure of 11 versus the projected 9. Nonetheless, the report also indicated that despite the notable gains in the CBI Industrial Trends, net investments were tepid.
Meanwhile, Theresa May’s commitment to lead Brexit negotiations as the Brexit Department continues with preparations to take Britain out of the EU was received positively by market traders, but it remains to be seen for how long the positive sentiment around Sterling will remain.
The U.K. economy has continued to underwhelm based on recent macro-economic data and the chances of a rate hike in August continue to diminish. Nonetheless, investors will be looking at this Wednesday’s events as the UK gears up to release the June BBA Mortgage Approvals and the CBI survey on realized sales. This data is minor and is not expected to shake the GBP/USD currency pair with any significance.
On the other hand, the U.S. will be releasing data for MBA Mortgage Applications, but again, this is unlikely to impact the pair in any significant way. However, traders will continue to monitor events in the trade wars arena.