GBP/USD loses momentum
July 21, 2023 10:22 amVideo
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The British pound advanced after retail sales in the UK exceeded economists’ forecasts, reinforcing fears of continued high price pressure in the country. However, the sellers took advantage of this moment and reclaimed their positions in the area of 1.2905. We will cover the technical analysis a little bit later.
The UK’s hottest June on record helped boost retail sales by pushing consumers to shop at department stores and supermarkets. The volume of goods sold in stores and online rose by 0.7% last month after gaining 0.1% in May. This was reported by the Office for National Statistics. Economists had forecast growth of 0.2% on a monthly basis.
The ONS said sales growth was driven by a 1% rise in non-food products. Summer sales and an increase in department store traffic due to hot weather helped drive up spending. “Retail sales were strong, with food sales rebounding on additional days off, helped in part by good weather,” ONS said. “However, the drop in fuel sales partially offset the increase.”
Compared to last year, sales fell by 1%.
The figures show that the UK economy is coping well with the headwinds, even as prices and interest rates soar. However, this factor, along with expectations that the Bank of England will continue to raise interest rates, has made economists cautious about the outlook. It’s too early to tell how much further momentum will be given to an economy that continues to struggle with high prices, albeit slightly down from recent highs. The recovery in retail sales is a good indication that the UK is likely to avoid a recession, but more price pressure needs to be reduced, which would be very difficult to do with strong retail sales.
A separate report showed that the Finance Ministry’s budget is doing better than expected, with public sector net borrowing declining in both May and June. The deficit for the last month was £18.5 billion, less than the anticipated £22 billion. The May figures were also revised downwards.
As I noted above, stronger economic data confirms further interest rate hikes from the Bank of England, which is concerned that inflation is running nearly four times faster than its 2% target.
As for the technical outlook for GBP/USD, the pound was encouraged by inflation data but then came back under pressure. We may see more growth only when bulls take control of the 1.2905 level. A return to this range will strengthen hopes for a recovery to the 1.1960 area, after which it will be possible to talk about a sharper surge to the 1.3030 area. If the pair declines, bears will try to take control of 1.2850. A break out of this range would hit the bulls’ positions and push GBP/USD to a low of 1.2800 with the prospect of a further drop to 1.2760.
As for today’s technical outlook for EUR/USD, buyers need to climb above 1.1165 and consolidate there to stay in control of the market. This will open the way to the level of 1.1215, from where it will be possible to climb to 1.1280. However, this would be hard to perform without strong statistics on the eurozone. In case of a decrease in the trading instrument, I expect large buyers to step in only at 1.1100. If no activity is observed at this level, it would be good to wait until the price retests the low of 1.1060. Otherwise, you can go long from 1.1015.
The material has been provided by InstaForex Company – www.instaforex.com
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