Published on Jun 20, 2023

Daily Analysis For GBP/USD 20-06-2023

GBP/USD Analysis

Key Points: -

· The GBP/USD currency pair stays in a neutral position after retracing from a 14-month high.

· The surge in the UK government's two-year borrowing cost raises concerns regarding a more hawkish stance from the Bank of England (BoE).

· Discussions from the Federal Reserve (Fed) and mixed economic data entice bears to dominate Pound Sterling as markets fully resume.

· Cable traders may find interest in upcoming events such as the UK Consumer Price Index (CPI), second-tier US data, the BoE meeting, and Fed Chair Powell's Testimony.

Today's Scenario: -

The GBP/USD currency pair remains on the defensive near 1.2780, struggling to validate concerns of a hawkish stance from the Bank of England (BoE) ahead of the release of UK inflation data. Furthermore, mixed sentiment surrounding the Federal Reserve (Fed) continues to weigh on Pound Sterling, hindering its ability to sustain the reversal from the highest levels seen since April 2022.

Earlier today, The Times reported that the UK government's two-year borrowing costs have risen above 5% for the first time in 15 years, reflecting growing expectations that the BoE will raise interest rates further in its ongoing battle against inflation. The article also highlighted that Gilt yields, which move inversely to British Pound prices, have surged in recent days as traders anticipate higher and more prolonged rate increases by the central bank.

Conversely, the Fed's monetary policy report, presented to the US Congress on Friday, along with recent comments from Fed officials, favor the US Dollar bulls. The report for Congress stated, "Inflation in the US is well above target and the labor market remains very tight," according to Reuters. Notably, several Fed representatives, including Richmond Fed President Thomas Barkin, Chicago Fed President Austan Goolsbee, and Federal Reserve Governor Christopher Waller, have expressed slightly hawkish views in recent times.

It is important to note that concerns over a slower economic recovery in the UK, coupled with tensions between the US and China, weigh on market sentiment and provide support for the US Dollar. Reflecting this sentiment, S&P 500 Futures show slight losses, while the yields on the US 10-year and two-year Treasury bonds hover around 3.82% and 4.75% respectively at the time of writing, following consecutive increases in the past two days.

Looking ahead, the UK economic calendar appears relatively quiet on Tuesday, but the return of full market participation and the release of US housing data may capture the attention of GBP/USD traders. Above all, Wednesday's UK inflation data and Fed Chair Jerome Powell's bi-annual Testimony will be key factors in determining the near-term movements of the Cable pair.

Diagram of GBP/USD: -

Economic Events: -

Date Event Impact Currency

02:30 (New Zealand) Westpac Consumer Confidence Low NZD

06:45 (China) Loan Prime Rate 1Y Medium CNY

06:45 (China) Loan Prime Rate 5Y Medium CNY

07:00 (Australia) RBA Meeting Minutes High AUD

07:05 (Australia) RBA Kent Speech Medium AUD

09:00 (Australia) RBA Bullock Speech Medium AUD

10:00 (Japan) Industrial Production MoM Low JPY

10:00 (Japan) Industrial Production YoY Low JPY

10:00 (Japan) Capacity Utilization MoM Low JPY

10:30 (Estonia) PPI YoY Low EUR

10:30 (Estonia) PPI MoM Low EUR

10:30 (Finland) Unemployment Rate Low EUR

11:30 (Germany) PPI MoM Medium EUR

11:30 (Germany) PPI YoY Low EUR

11:30 (Switzerland) Balance of Trade Medium CHF

13:30 (Euro Area) Current Account Low EUR

13:30 (Euro Area) Current Account s.a Low EUR

13:30 (Greece) Current Account Low EUR

13:30 (Euro Area) ECB Enria Speech Low EUR

14:30 (Euro Area) Construction Output YoY Low EUR

14:30 (Italy) Current Account Low EUR

14:30 (United Kingdom) 5-Year Treasury Gilt Auction Low GBP

15:00 (Germany) 2-Year Schatz Auction Low EUR

15:30 (Portugal) PPI YoY Low EUR

15:30 (Portugal) PPI MoM Low EUR

15:30 (Luxembourg) Unemployment Rate Low EUR

15:30 (Slovakia) Unemployment Rate Low EUR

16:00 (United States) Fed Bullard Speech Medium USD

17:15 (Euro Area) ECB McCaul Speech Low EUR

18:00 (United States) Housing Starts Medium USD

18:00 (United States) Building Permits High USD

18:00 (United States) Housing Starts MoM Medium USD

18:00 (United States) Building Permits MoM Medium USD

19:00 (Slovenia) Unemployment Rate Low EUR

19:15 (Euro Area) ECB McCaul Speech Low EUR

20:30 (New Zealand) Global Dairy Trade Price Index Low NZD

21:00 (United States) 3-Month Bill Auction Low USD

21:00 (United States) 6-Month Bill Auction Low USD

21:15 (United States) Fed Williams Speech Medium USD

22:30 (El Salvador) Balance of Trade Low USD

22:40 (Euro Area) ECB Guindos Speech High EUR

Buy Scenario: -

The GBP/USD currency pair rebounds with renewed upward momentum after a sluggish start to the week, climbing to 1.2800 during Tuesday's early Asian session. This brings the pair to its highest levels in 14 months, maintaining a bullish trend channel that has persisted for the past week.

In addition to the bullish channel, support comes from the 21-day Simple Moving Average (SMA) level and optimistic expectations regarding the Bank of England (BoE). The BoE's hopes for a hawkish stance are fueled by upbeat inflation pressures in the UK.

It is worth noting that recent data from Lloyds Bank reveals a decrease in production costs for British food manufacturers in May, attributed to lower commodity and energy prices, as well as reduced shipping costs, outweighing an increase in wage bills. This information underscores the importance of Wednesday's UK inflation data, preceding the BoE announcements on Thursday, which will be critical for GBP/USD traders to monitor.

However, caution is advised as the Relative Strength Index (RSI) remains in overbought territory, and the Moving Average Convergence Divergence (MACD) indicator indicates bearish signals, signaling a formation of lower highs for GBP/USD.

To sustain the bullish momentum, buyers of the Cable need a clear breakthrough above the 1.2820 resistance level.

Upon achieving this, the recent multi-day peak around 1.2850 and the upper boundary of the mentioned bullish channel near 1.2910 may attract GBP/USD buyers, with the key psychological level of 1.3000 serving as a further target. Till we do not advise to buy GBP/USD.

Sell Scenario: -

On the flip side, a downside break below the confluence of the 21-day SMA and the lower boundary of the bullish channel, currently near 1.2760, could trigger a short-term bearish move for the GBP/USD pair.

Nevertheless, sellers of GBP/USD may encounter resistance from the upper boundary of the previous bullish channel, which dates back to late May and is currently located around 1.2650, before potentially finding more substantial support in the short term. Till then we do not advise selling GBP/USD.