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Significant short-term bearish momentum in market sentiment.
Amid the recovery of the US dollar in the forex market, the pound sterling was the main loser against it. Accordingly, the Pound sterling fell against the dollar, GBP/USD, to the support level of 1.1792, the closest to its lowest during the trading of the year 2022. It closed trading last week, stable around the 1.1825 level. The pair’s losses pushed the technical indicators towards oversold levels However, the weakness factors still warn of further losses for the currency pair. This week, the US dollar will be the focus of investors’ attention, and this time it will be monitoring to announce the growth rate of the US economy, and what will be mentioned in the Jackson Hole symposium organized by the US Federal Reserve. Jerome Powell’s statements in this event will receive more attention and monitoring.
GBP/USD Economic Analysis
The GBP/USD currency pair is trading affected by the announcement that the US initial jobless claims for the week ending August 12th exceeded expectations at 265 thousand with the number of claims recorded at 250 thousand. Continuing claims also exceeded 1.438 million with a proceeds of less than 1.437 million. Prior to that, US retail sales figures for July exceeded expectations at 0.6% with a growth rate of 0.8%. On the other hand, US general retail sales for this month came out against expectations (MoM) at 0.1% with a change of 0%.
From the UK, UK CPI for July rose again to 10.1% (y/y) compared to expectations of 9.8% and 9.4% recorded in the previous month. The change (MoM) was 0.6% compared to a forecast of 0.4% but lower than the previous month’s 0.8%. The seasonally adjusted core PPI for July outperformed the forecast (MoM) by 0% with a print of 1%. On the other hand, the equivalent (on an annual basis) beat expectations at 15.9% with a rate of 14.6%.
There has been a sudden rise in retail sales, but consumer confidence is dropping to a 50-year low. Despite rising British inflation, UK retail sales surprised with growth in July, despite the much-watched gauge of consumer confidence dropping to an all-time low.
As announced, UK retail sales volume rose 0.3% in July 2022 after declining 0.2% in June 2022, according to the Office for National Statistics. This exceeded expectations as the consensus was looking for another reading of -0.2%. Retail sales are now down 3.4% y/y, slightly worse than the consensus had expected of -3.3%, but up in June -5.9%. The Office for National Statistics notes that despite a better-than-expected result for July, retail sales have been trending downward since the summer of 2021.
The data showed that for most categories, although the total value of goods sold increased in many cases, the quantities sold decreased. This reflects the effect of higher prices which raise the amount of money in circulation but at a lower turnover. The data comes in the same week that the UK reported year-on-year inflation growth of 10.1% for the month of July, with the Bank of England expecting the peak to be closer to 13%. Given the rising inflation expectations, other data released on Friday showed that British consumer confidence fell to another record low.
According to the advertiser, the GfK consumer confidence gauge fell to an all-time low of -44 in August, from a reading of -41 in July. At -60, a sharp drop in consumers’ expectations for the economy in the next 12 months was one reason for this record result. GfK says the result was due to a persistent rise in inflation, which is expected to peak later in the year.
Although the retail sales data for July beat expectations, the outlook remains tough. The upside surprise was driven by a massive 4.8% m-o-m increase in out-of-store retail, i.e. online. Comments from retailers suggest that this is due to a combination of online promotions that boost sales. Overall, the data released on Friday is clear: the British consumer is feeling the impact of higher prices and is likely to ease further, especially given that peak UK inflation is still some way off.
GBP/USD technical analysis
On both the short and long term, the recent losses of the GBP/USD pair pushed the technical indicators towards oversold levels. In the near term and according to the performance on the hourly chart, it appears that the GBP/USD is trading within a descending channel formation. This indicates a significant short-term bearish momentum in market sentiment. Therefore, the bears will look to extend the current declines towards 1.1800 or lower to 1.1720. On the other hand, the bulls will target potential recovery profits at around 1.2025 or higher at 1.2114.
In the long term and according to the performance on the daily chart, it appears that the GBP/USD currency pair is trading within the formation of a descending channel. This indicates a significant long-term bearish momentum in market sentiment. Therefore, the bears will look to maintain control of the pair by targeting profits at around 1.1660 or lower at 1.1295. On the other hand, the bulls will target potential retracements around 1.2241 or higher at 1.2605.
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