(Eren Sengezer – FXStreet)
– GBP/USD has struggled to gather bullish momentum despite strong inflation data.
– The cautious market mood seems to be limiting the pair’s upside.
– Focus shifts to US Retail Sales data and FOMC Minutes.
GBP/USD has failed to capitalize on hot UK inflation data early Wednesday and declined below 1.2100 before staging a rebound. The near-term technical outlook paints a mixed picture as the pair trades between key levels.
The UK’s Office for National Statistics (ONS) reported on Wednesday that inflation in the UK, as measured by the Consumer Price Index (CPI), jumped to 10.1% in July from 9.4% in June. Additionally, the Core CPI, which strips volatile food and energy prices, rose to 6.2% from 5.8%. Although both of these readings came in above market expectations, the British pound struggled to find demand. The rising cost of living in the UK and the prospects for higher energy prices could hurt consumer activity in the UK and make it difficult for the Bank of England (BOE) to stay on an aggressive tightening path.
Meanwhile, the UK’s FTSE 100 Index is down 0.2% and US stock index futures are trading in negative territory. In case the market mood continues to sour, GBP/USD could find it hard to gather recovery momentum.
Later in the day, July Retail Sales data from the US will be watched closely by market participants. Falling crude oil prices are likely to bring down the total amount of sales and investors expect the data to show a 0.1% increase in July following June’s 1% expansion. A bigger-than-expected print could provide a boost to the dollar and vice versa.
In the late American session, the FOMC will release the minutes of its July meeting. The publication is likely to reaffirm policymakers’ willingness to remain data-dependent. Due to the fact that the policy meeting took place before the July inflation and employment data, the publication might not influence the market pricing of the next Fed policy move. As it currently stands, markets are pricing in a 48.% probability of a 75 basis points rate hike in September.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the daily chart continues to fluctuate near 50, reflecting GBP/USD’s indecisiveness. On the upside, 1.2100 (psychological level, Fibonacci 38.2% retracement of the latest uptrend) aligns as first resistance before 1.2130 (100-period SMA). A four-hour close above the latter could be seen as a bullish development and open the door for an extended rebound toward 1.2175 (Fibonacci 23.6% retracement) and 1.2200 (psychological level).
Key support seems to have formed at 1.2050 (200-period SMA, Fibonacci 50% retracement). In case sellers manage to flip that level into resistance, 1.2000 (psychological level, Fibonacci 61.8% retracement) and 1.1940 (static level) could be seen as next bearish targets.