Published on May 26, 2023

Daily Analysis For GBP/USD 26-05-2023

GBP/USD Analysis

Key Points for GBP/USD pair

• The GBP/USD currency pair has experienced a rebound from the level of 1.2330. However, the overall bias remains tilted towards the downside.

• Investors are primarily focused on the issues surrounding the US debt ceiling, giving more weight to this concern rather than the dovish signals coming from the Federal Open Market Committee (FOMC) minutes.

• In the United Kingdom, Jeremy Hunt, a prominent figure, expressed confidence that inflation will be reduced by half by the end of the year.

Today's Scenario: - The GBP/USD pair has initiated a recovery after finding support around 1.2320 during the Tokyo session. The ongoing decline in the US Dollar Index (DXY) below 104.10 has contributed to the expectation of a potential pause in the Federal Reserve's (Fed) policy-tightening measures, further supporting the Cable's recovery.

Early in the Asian session, S&P500 futures recorded notable losses as investors expressed caution due to unresolved issues regarding the US borrowing cap. The discrepancy in proposed budget spending between the White House and Republican leaders has narrowed to $70 billion from the original proposal of $1 trillion. House of Representatives Kevin McCarthy stated that bipartisan efforts are underway to address the matter.

However, US Treasury Secretary Janet Yellen continues to warn that the federal government will exhaust its funds by June 1 and could potentially default on certain payment obligations.

As the Fed's rate-hiking trajectory may experience a pause, the USD Index is anticipated to decline further towards 104.00. This adjustment would reduce the interest rate divergence between the Fed and other central banks. Richmond Fed Bank President Thomas Barkin mentioned on Thursday that the US labor market remains tight and acknowledged that some businesses still express the need to raise prices. However, he also noted that higher interest rates and tight credit conditions imposed by regional US banks have significantly impacted demand.

On the Pound Sterling front, investors are eagerly awaiting the release of the United Kingdom's Retail Sales data for April. The preliminary report suggests a monthly expansion of 0.3% compared to the previous month's contraction of 0.9%. Additionally, annual Retail Sales are expected to contract by 2.8% versus a contraction of 3.1% previously. A rebound in retail demand could potentially contribute to inflationary pressures, thereby posing additional challenges for the Bank of England (BoE).

Diagram of GBP/USD

Economic Events: -

GMT	Event	Impact	Currency
00:30	(Japan) Tokyo Core CPI YoY	Low	JPY
00:30	(Japan) Tokyo CPI YoY	Low	JPY
00:30	(Japan) Tokyo CPI Ex Food and Energy YoY	Low	JPY
02:30	(Australia) Retail Sales MoM	High	AUD
04:35	(Japan) 3-Month Bill Auction	Low	JPY
06:00	(Japan) Leading Economic Index	Low	JPY
06:00	(Japan) Coincident Index	Low	JPY
07:00	(Lithuania) Retail Sales MoM	Low	EUR
07:00	(Lithuania) Retail Sales YoY	Low	EUR
07:00	(United Kingdom) Retail Sales ex Fuel MoM	High	GBP
07:00	(United Kingdom) Retail Sales ex Fuel YoY	High	GBP
07:00	(United Kingdom) Retail Sales YoY	High	GBP
07:00	(United Kingdom) Retail Sales MoM	High	GBP
07:30	(Switzerland) Non Farm Payrolls	Low	CHF
07:45	(France) Consumer Confidence	Medium	EUR
08:15	(Euro Area) ECB Enria Speech	Low	EUR
08:40	(Euro Area) ECB Lane Speech	Medium	EUR
09:00	(Italy) Consumer Confidence	Medium	EUR
09:00	(Italy) Business Confidence	Medium	EUR
09:00	(Austria) Bank Austria Manufacturing PMI	High	EUR
10:10	(Italy) 6-Month BOT Auction	Low	EUR
11:00	(France) Jobseekers Total	Low	EUR
11:00	(France) Unemployment Benefit Claims	Medium	EUR
11:00	(Luxembourg) Balance of Trade	Low	EUR
13:30	(Canada) Wholesale Sales MoM	Low	CAD
13:30	(United States) Goods Trade Balance	High	USD
13:30	(United States) Wholesale Inventories MoM	Medium	USD
13:30	(United States) Core PCE Price Index MoM	High	USD
13:30	(United States) Core PCE Price Index YoY	Low	USD
13:30	(United States) PCE Price Index MoM	Medium	USD
13:30	(United States) PCE Price Index YoY	Medium	USD
13:30	(United States) Personal Spending MoM	High	USD
13:30	(United States) Personal Income MoM	High	USD
13:30	(United States) Retail Inventories Ex Autos MoM	Medium	USD
13:30	(United States) Durable Goods Orders Ex Transp MoM	High	USD
13:30	(United States) Non Defense Goods Orders Ex Air	Low	USD
13:30	(United States) Durable Goods Orders MoM	High	USD
13:30	(United States) Durable Goods Orders ex Defense MoM	High	USD
15:00	(United States) Michigan Consumer Expectations	Low	USD
15:00	(United States) Michigan Current Conditions	Low	USD
15:00	(United States) Michigan 5 Year Inflation Expectations	Low	USD
15:00	(United States) Michigan Consumer Sentiment	High	USD
15:00	(United States) Michigan Inflation Expectations	Low	USD
16:00	(Canada) Budget Balance	Low	CAD
18:00	(United States) Baker Hughes Oil Rig Count	Low	USD
18:00	(United States) Baker Hughes Total Rig Count	Low	USD

Buy Scenario: - GBP/USD continues to trade near a two-month low as sellers test a short-term support line ahead of the significant UK Retail Sales data released early on Friday. Consequently, the British Pound is struggling to extend its three-day losing streak around the 1.2320-1.2315 range at the moment.

The upcoming UK Retail Sales report for April, which is expected to show a 0.3% month-on-month increase compared to the previous contraction of -0.9%, could potentially pose a challenge to the sellers of the GBP/USD pair, along with the support line that has been in place for the past two weeks and the nearly oversold reading on the Relative Strength Index (RSI) (14).

However, there is a downward-sloping resistance line from May 10, currently located around 1.2370, which could hinder any further recovery for the GBP/USD pair.

Even if the pair manages to surpass the 1.2370 level, the 50-day Moving Average (DMA) obstacle around 1.2435 may act as the final defense for the bears before giving way to the bulls. Till we do not advise to buy GBP/USD.

Sell Scenario: - On the downside, a decisive break below the immediate support line near 1.2300 could target the 100-day Moving Average (DMA) support around 1.2285.

Subsequently, a horizontal range consisting of levels observed since March 13 and the 61.8% Fibonacci retracement of the upward move from March to May, roughly positioned around 1.2190-1.2185 and 1.2140 respectively, might pose a challenge for the GBP/USD bears. Till then we do not advise selling GBP/USD.

Support and Resistance Level: -