GBP to USD Forecasts: Bulls Eye $1.25 Despite Weaker Retail Sales

It is a relatively quiet Tuesday session for the GBP/USD. The UK construction PMI for May will draw interest early in the European session. However, we don’t expect the construction PMI to influence the BoE’s interest rate decision this month or the GBP/USD pairing.

Market risk sentiment and the shift in investor sentiment toward the Fed’s interest rate trajectory will remain the key drivers.

With no economic indicators for investors to consider, Bank of England commentary would move the dial. However, no Monetary Policy Committee members are on the calendar to speak today, leaving chatter with the media to influence.

Earlier today, the BRC Retail Sales Monitor did draw interest, with elevated inflation continuing to have an impact on consumer spending. The BRC Retail Sales Monitor increased by 3.7% year-on-year in May versus a forecasted 5.2% increase. In April, the BRC Retail Sales Monitor rose by 5.2%.

According to the May report,

• The Food & Drink sector saw a fall in volume sales. A reported 75% of consumers expected food prices to increase in the year ahead.
• Despite elevated food prices, the IGD’s Shopper Confidence Index reached its highest level in more than two years.
• Online retailers reported a 3% decline in sales.
• Improved weather in late May led to a bounce back in spending on summer fashion, gardening, and DIY sales.
• Retailers hope that confidence will improve on easing inflation to support spending.

GBP to USD Price Action

This morning, the GBP/USD was up 0.06% to $1.24435. A mixed start to the day saw the GBP/USD fall to an early low of $1.24198 before rising to a high of $1.24512.

Technical Indicators

Resistance & Support Levels

The Pound needs to avoid the $1.2418 pivot to target the First Major Resistance Level (R1) at $1.2468. A move through the morning high of $1.24512 would signal an extended breakout session. However, the Pound would need market risk sentiment to support a breakout session.

In the event of an extended rally, the GBP/USD would likely test the Second Major Resistance Level (R2) at $1.2499 and resistance at $1.25. The Third Major Resistance Level sits at $1.2581.

A fall through the pivot would bring the First Major Support Level (S1) at $1.2386 into play. However, barring a risk-off-fueled sell-off, the GBP/USD should avoid sub-$1.23. The Second Major Support Level (S2) at $1.2337 should limit the downside. The Third Major Support Level (S3) sits at $1.2255.

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The GBP/USD sat above the 100-day EMA, currently at $1.24374. The 50-day EMA narrowed on the 200-day EMA, with the 100-day EMA pulling away from the 200-day EMA, delivering bullish signals.

A hold above 100-day EMA ($1.24374) would support a breakout from R1 ($1.2468) to give the bulls a run at R2 ($1.2499) and $1.25. However, a fall through the 100-day ($1.24374) and 50-day ($1.24293) would bring S1 ($1.2386) into view. A fall through the 50-day EMA would send a bearish signal.

The US Session

It is a quiet US economic calendar, with no economic indicators to move the dial. The lack of economic indicators will leave Fed chatter to influence. After ISM Non-Manufacturing PMI numbers on Monday, the markets remain uncertain about the June policy decision and whether more rate hikes are likely in the proceeding months.

According to the CME FedWatch Tool, the probability of a 25-basis point June interest rate hike slipped from 25.3% to 21.2% on Monday versus 64.2% one week earlier.