GBP/USD Recovers Following Thursday’s Volatile Session

GBP/USD is advancing in today’s session following a rather volatile trading day on Thursday. The pair is currently at 1.3005, a gain of 0.49% over Thursday’s North American close.

GBP/USD advanced on Thursday, reaching is highest level since late September 2016, following the release of UK Retail Sales for April. UK Retail Sales volume surged 2.3% in April, compared to consensus forecast for an increase of 1.0%. The year-over-year increase of 4.0% was also higher than the expected reading of 2.1%. The March monthly decline was also revised from 1.8% to 1.4%. Core Retail Sales rose 2% month-over-month, while the year-over-year rate was at 4.5%, versus an expected figure at 2.5%.

However, after reaching 1.3048 for a high following the release of the data, sellers stepped in and drove the pair down to a new session low at 1.2888. This decline took place as the dollar benefited on Thursday from a batch of strong economic data, as weekly jobless claims and the Philadelphia Fed Index both came in better than expected. The Leading Economic Index also recorded its eighth straight increase in April.

However, dollar strength proved temporary and GBP/USD is currently in the midst of a rebound rally. And, given the technical damage which has recently been incurred by the US dollar index (DXY), which measures the greenback’s strength against a basket of six major currencies, further losses are expected, thereby giving a lift to GBP/USD.

First resistance for the pair is at this week’s high at 1.3048. The next potential resistance derived from the daily chart, is at the minor top established September 22nd at 1.3121, followed by the more significant corrective top established September 6th at 1.3445. This high represents a test of the highs established in late-June/mid-July of 2016.

The current upside target for GBP/USD comes in ahead of this key resistance level, at approximately 1.3320. This target was derived from the breakout from a symmetrical triangle pattern shown on the daily chart which took place on April 18th. The symmetrical triangle dates to early December 2016. Upside targets derived from price patterns are typically the minimum move to watch for once a pattern is confirmed. Therefore, reaching the 1.3320 level would not necessarily mean the advance in GBP/USD has run its course.

On the downside, first support is now former resistance at the 1.2990-1.2984 zone. Maintaining above this area keeps the bias firmly to the upside heading into next week. On a drop below this support, the next level to watch stands at the 1.2844-1.2829 zone, which represents the lows established May 4th and May 12th. At present, a return to this area is not expected.

Regrading economic data out of the UK, it was reported today at 06:00 ET that CBI Industrial Trends Orders for May came in at 9 versus an expected reading of 4, which was unchanged from the April reading. The pair backed off from the session high following the data release, however the pullback is thus far minimal.

In the US, there are no economic releases on today’s calendar. However, the Fed’s Bullard is scheduled to speak at 09:15 ET. Bullard, the President of the Federal Reserve Bank of St. Louis, is a non-voting member of the FOMC. However, he will speak on the US economy and monetary policy and could give clues as to the Fed’s next move. Federal Reserve Bank of San Francisco President Williams will speak in the afternoon. He also is a non-voting member of the FOMC. As of Thursday’s close, Fed funds futures were pricing in a 73.8% probability of a rate hike, up from 64.6% the session prior.

At 15:30 ET today, the latest Commitment of Traders report from the Commodity Futures Trading Commission will be released. The latest report, with data as of May 9th, showed net short position of 46,498 British pound futures contracts held by large speculators. This represented the fourth consecutive week sentiment regarding Sterling improved and was the lowest net short position held by large speculators since late June 2016.

Next week, on Sunday at 19:01 ET, the UK Rightmove House Price Index will be released. This is a low impact report. Monday’s calendar is void of key releases out of both the UK and the US.

GBP/USD Daily Chart

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Tracy L. Morganthall, CMT, has been a Technical Market Analyst for more than 20 years. She has experience analyzing and producing reports on equities, both domestic and international markets, as well as Forex and commodities. She attended Trenton State College in Trenton, New Jersey, earning a Bachelor's in Finance.