GBPUSD takes a breather after 3 days in the red

21 Sep 2021

GBPUSD is in slight green territory after a third-day of losses, largely due to the strength in the greenback amid market risk off mood which benefited USD as a safe haven currency. The US Dollar Index (DXY) which is a gauge of the US Dollar strength against six other major currencies, hit a monthly high of 93.45 before retreating and finding support around 93.10.

Upbeat US Retail Sales Fuels Taper Expectation

The US Dollar enjoyed a rally from the upbeat US Retail Sales data that was released last Thursday. As opposed to market consensus that the August Retail Sales will decrease by -0.8%, the actual data beat the forecast with a monthly increase of 0.7% since July. The data published by the US Census Bureau is a leading indicator of consumer spending in the US. A positive figure is normally bullish for the US dollar as it signals strength in the economic recovery. The upbeat data is leading market to expect that the Fed may signal they are almost ready to taper in the upcoming Federal Open Market Committee (FOMC) meeting this Thursday.

Risk Aversion

Furthermore, the plunge in global indices due to the Evergrande crisis put the market in a risk-off mood, favouring the safe haven US dollar. However, a steep decline in the US Treasury bond yields limited the DXY’s rally, allowing GBPUSD to take a breather.

Eyes of BoE’s Interest Rate Decision

While the US dollar is in the driver’s seat for the price movement of the pair, traders are cautious ahead of the release of UK’s Markit Services PMI data on Thursday. The data is an indicator of the economic situation in the UK services sector. In 2021, actual data outperformed market consensus in five out of 8 releases. On the same day as the PMI data release, Bank of England’s (BoE) Monetary Policy Committee (MPC) will be gathering to vote on the interest rate decision. Traders should anticipate volatility on Thursday, as another better-than-forecast PMI data will likely stir speculation of a hawkish BoE. Therefore, boosting the GBP. It’s worth noting that the general consensus is leaning towards an unchanged interest rate decision, maintaining at 0.1%.

Technical Analysis

GBPUSD is seen continuing on a falling wedge formation. The pair is displaying bearish momentum as the Relative Strength Index (RSI) resides below 40. The indictor was also confluent with the Moving Average Convergence Divergence (MACD) that is in the negative region and below its signal line. Looking ahead, we forecast that the pair will head down to test the lower support band of the falling wedge at around S1. A breakdown from this key support line will likely trigger a downside to S2 which is a historical resistance-turned-support line. In the alternate scenario where GBPUSD rebounds, the upper band of the falling wedge will serve as strong resistance.

Key events to watch in the coming week:

Tuesday, Sept 21

USD – Building Permits (MoM)(Aug), Housing Starts (MoM)(Aug)

Thursday, Sept 23

USD – FOMC Economic Projections, Fed Interest Rate Decisions, Fed’s Monetary Policy Statement, FOMC Press Conference, Initial Jobless Claims (Sep 17), Markit Manufacturing PMI (Sept), Markit Services PMI (Sept), Markit PMI Composite (Sept)

GBP – Market Services PMI (Sept), BoE MPC Vote Rate Unchanged/Cut/Hike, BoE Asset Purchase Facility, Monetary Policy Summary, Bank of England Minutes, BoE Interest Rate Decision.

Friday, Sept 24

USD – New Home Sales (MoM)(Aug)

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