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It is a big week for the GBP to USD, with economic indicators from the UK and the Bank of England in the spotlight.
The UK inflation report will move the dial on Wednesday. With the BoE delivering the June interest rate decision on Thursday, we expect Pound sensitivity to the numbers. Sticky inflation would force the BoE to signal a more hawkish policy outlook.
On Thursday, the Bank of England will deliver its pre-summer interest rate decision. A hawkish 25-basis point interest rate hike would align with recent economic indicators, suggesting the need for more aggressive policy moves to tame inflation. However, more aggressive moves would place the UK economy at risk of an economic recession.
Retail sales figures and prelim private sector PMI numbers will wrap up a busy week on Friday. The retail sales and services PMI should have more impact. Strong retail sales and a pickup in service sector activity would support further BoE policy moves.
With the economic calendar, investors should also consider Monetary Policy Committee Member speeches.
GBP to USD Technical Indicators
Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The GBP to USD sits above the 50-day EMA, currently at $1.26209. The 50-day EMA pulled further away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.
A hold above the 50-day EMA ($1.26209) would support a breakout from R1 ($1.2948) to give the bulls a run at R2 ($1.3079). The UK CPI Report and the Bank of England must support another breakout week. However, softer inflation numbers and a dovish 25-basis point BoE rate hike would signal a fall through the 50-day EMA ($1.2609) to bring S1 ($1.2587) into view.
Support and Resistance Levels
The GBP to USD needs to avoid the $1.2718 pivot to target the First Major Resistance Level (R1) at $1.2948. A move through the previous week’s high of $1.28484 would signal a bullish week. However, the UK CPI Report and the BoE would need to support a breakout session ahead of the private sector PMIs and retail sales figures on Friday.
In case of a breakout session, the Pound would likely test resistance at the Second Major Resistance Level (R2) at $1.3079. The Third Major Resistance Level (R3) sits at $1.3441.
A fall through the pivot would bring the First Major Support Level (S1) at $1.2587 into play. However, barring a central bank-fueled sell-off, the GBP to USD pair should avoid sub-$1.25 and the Second Major Support Level (S2) at $1.2356.
The Third Major Support Level (S3) sits at $1.1994.
The US Week Ahead
The US housing sector will be in focus in the first half of the week. However, building permits and housing starts are unlikely to influence.
A fall in jobless claims would support a July Fed interest rate hike. However, we expect prelim private sector PMIs for June to have more impact on Friday. The services PMI will have more influence, with softer numbers favoring a Fed pause.
While the stats will move the dial, Fed chatter will also provide direction to the GBP to USD. FOMC members Bullard, Williams, Mester, Bowman, and Bostic are on the calendar to speak. Fed Chair Powell will also give testimony on Capitol Hill on Tuesday and Wednesday. We expect the Fed Chair to garner more interest.
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