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The GBP/USD exchange rate trades softer at 1.2548 at the time of writing as it pares back further the gains it realised over the course of the past two weeks. Analyst and technical forecaster Richard Perry of Hantec Markets says Sterling bulls continue to be frustrated by a descending trend line.
Although there is still a positive bias to GBP/USD, the fact that the resistance of the falling 7 month downtrend continues to hamper the move higher is an increasing concern.
The big trend line falls today around $1.2675 which is all but at the resistance of last week’s rebound high of $1.2670.
Bouncing from $1.2480 was important to sustain any semblance of a positive skew to the medium term trading range, however, pulling back to that same neckline to leave further resistance at yesterday’s high of $1.2650 threatens to see that positive bias fizzle out again.
The positive momentum configuration of early July is just beginning to lose its way now, as RSI tails back towards 50 and MACD lines flatten.
A close back under $1.2540 would suggest the bulls are losing their control and would turn the outlook neutral once more.
Below $1.2435 would turn into a more negative bias within the range. Given the frequent failures just under the seven month downtrend in the past week, the bulls need to break decisively above $1.2670 to really stamp their control.
Chinese Data Triggers Market Wobble
A slight tempering of the recent surge in risk appetite has taken hold today.
Positive newsflow in recent days over the progress of COVID-19 vaccines (one from US pharma company Moderna, and one out of Oxford University) show that vaccines are in the pipeline.
If this turns out to be the case, this will be the one true way that risk appetite can sustainably recover.
However, economic data out of China overnight, suggests that in the meantime, economic recovery may be wobbly.
Whilst GDP for Q2 came in ahead of expectations (at +3.2%, versus expectations of +2.5%), there was concerning data regarding consumers in China.
Retail Sales showed a disappointing -1.8% decline in June, a point at which China was fully out of lockdown.
The consumer may still only account for around half the Chinese economy, and industrial production grew as expected, however, it is the read through to other, more consumer driven economies, which is the concern.
The US is struggling to get its economy out of lockdown as infection rates are at record levels. This does not bode well for consumer confidence and retail sales in the coming months.
June’s Today’s data will show a strong rebound in June, but concerns are for the months in Q3 which will be impacted by the second wave of infections (that’s if the first wave ever really finished).
We have a major central bank today on the docket, but the ECB is likely to be very much in wait and see mode, with the extended easing measures undertaken in June.