The GBP/USD pair could not hold gains and found a hard rejection near the 1.3900 level for the third time in a row. As a result, the price dropped towards the mid -1.38 on Tuesday, July 13, during the London session, ahead of the US CPI data release.
- GBP/USD finds stiff resistance at 1.3900.
- Dismal BRC data and Covid fears are weighing on the pair.
- Fed’s hope for sooner tapering is keeping the gains in pound limited.
- Technically, bulls are strong but not enough to break 1.3900 easily.
GBP/USD fundamental analysis: three events and stronger dollar weighing on the pound
The pair is consistently struggling to find bids beyond the 1.3900 level as sellers actively plunge in with huge supply and send back the price to the support area. The recent decline is attributed to the three key events:
- British Retail Consortium
- Brexit concerns
- Covid-19 spread across the UK
Let’s analyze them one by one.
British Retail Consortium
The BRC data showed 6.7% y/y growth in June, while the estimated 24% consensus on the increase met with an 18.5% rise. However, the worse than expected data could not help the buyers and sent the price lower.
The dispute arising from the UK’s Brexit bill size is worrying the pound. Moreover, the rising conflict has less room for negotiations, and it may turn into a highly non-substantive conflict.
Covid-19 Delta strain spreading across the UK
The new coronavirus variant has strongly overshadowed the optimism about removing sanctions and the lockdown in the UK economy.
The Prime Minister of the UK, Boris Johnson, confirmed on July 12 that the government would end the Covid related restrictions on July 19. However, he stressed the need for the public to be cautious unless the pandemic is entirely over. Johnson also said that the pandemic is still a significant threat. Another heavy outbreak is probable due to the Delta variant.
USD gaining back
On the other hand, the greenback remains entirely supported due to the Fed’s expectations that it will soon start its policy tightening. Moreover, the US Treasury yields have picked up, keeping the dollar underpinned. So this is another factor that keeps a lid on the gains of the pound.
What’s next in the economic calendar?
The market is awaiting the release of US consumer inflation data. Provided the fact that the Fed policymakers have agreed to show the readiness if inflation or other forms of risks occur. The data is significant as it may offer the timing of tapering and rate hike. The event is meaningful as it may provide directional bias to the traders.
GBP/USD technical analysis: can bulls come over 1.3900?
The 4-hour chart of the GBP/USD reveals an exciting scenario. There is a double top around the 1.3900 level. The mostly double top pattern serves as a temporary resistance.
On the downside, the down retracement remains supported by the 20-period SMA and the swing high of July 07 at 1.3845.
However, the volume is still biased towards sellers. But this can be fizzled out if US CPI figures surprise the market. Overall, the probability of overcoming the 1.3900 level is high but not that high because of the low volume for bullish candles.