Pound Rallies Near End Month

Jul 01 20, 10:23 GMT

The pound rallied against the USD yesterday, recovering substantial part of its losses in the previous days. Analysts tend to note that the movement was more related with end of quarter rebalancing, rather than any fuelling by market sentiment. We continue to see the risks related to the pound tilted to the downside despite yesterday’s jump as no major shift occurred in its fundamentals. PM Johnson stated, “We cannot continue simply to be prisoners of this crisis,” and announced a program of 5 billion pounds for infrastructure building. Also, UK’s finance minister Rishi Sunak stated, “On July 8th I will deliver an economic update setting out the next stage in our plan to secure the recovery”. Yet the announcements seemed to have little effect on the pound upon release and we don’t consider the amount of 5 billion pounds as a real game changer. It should be noted that the final GDP growth rate for Q1 showed a wider contraction than estimated and BoE warned in June, that the economy may have contracted by 20% in the first half of the year. Also, the EU and the UK do not seem to converge on Brexit and analysts have started to increase the probabilities for a hard Brexit. GBP/USD jumped yesterday breaking the 1.2300 (S2) and the 1.2375 (S1) resistance lines now turned to support. Despite the pair’s ascent and breaking of the downward trendline incepted since the 24th of June (red trendline), we still maintain a bearish outlook for the pair and for it to change we would require a clear breaking of the downward trendline incepted since the 10th of June (blue trendline). Should the pair actually remain under the control of the bears, we could see the pair breaking the 1.2375 (S1) and aim for the 1.2300 (S2) level. Should the cable find fresh buying orders along its path, we could see it breaking the downward trendline incepted since the 10th of June, the 1.2435 (R1) resistance line and aim for the 1.2515 (R2) resistance barrier which held its ground on the 24th of June.

USD remains on the high ground for now

The USD seems to have maintained the gains it made in the past few days, yet the market seems to maintain a wait and see position for today’s releases. Today’s and tomorrow’s manufacturing and employment data releases are expected to provide a better picture on where the US economy is heading to. Also, markets are expected to focus on the release of the Fed’s last meeting minutes and any clues about the policymaker’s opinions on whether the bank may employ any yield curve control measures. Once again, the markets seem to eye the reopening of the US economy and worries also loom as the US recorded a new high in COVID 19 cases yesterday. The delays of the reopening of the US economy could cloud the until now rosy picture of Q3 and could have a substantial adverse effect on the projections for the US economy’s performance. USD/CAD tumbled yesterday, breaking the 1.3620 (R1) support level, now turned to resistance. As the pair broke the upward trendline incepted since the 25th of June, we switch our bullish outlook for a sideways motion as the pair re-entered familiar waters, of the sideways movement during the period from the 12th to the 24th of June. Should the bulls take over we could see the pair breaking the 1.3620 (R1) resistance line and aim for the 1.3730 (R2) resistance level. On the flip side, should the pair come under the selling interest of the market, we could see it breaking the 1.3520 (S1) support line and aim for the 1.3425 (S2) support level.

Other economic highlights today and early tomorrow

In the European session, we get from Germany the retail sales growth rate for May, the final Markit manufacturing PMI for June and the Employment data for June. From the UK we get the nationwide house prices for June, and the final manufacturing PMI for June. Also please note from Sweden Riksbank’s interest rate decision. From the US we get the ADP national employment figure for June, the ISM manufacturing PMI for June and the EIA crude oil inventories weekly reading. As for speakers please note that BoE’s Haskel and Chicago Fed President Evans speak.

GBP/USD 4 Hour Chart