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GBP/USD Daily Forecast – British Pound Loses Ground After Retail Sales Report

GBP/USD stays below the key resistance level at 1.2250 and looks ready to test the nearest support at 1.2170.
Vladimir Zernov
GBP/USD

GBP/USD Video 22.05.20.

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UK Retail Sales Decline By 18.1% Month-Over-Month

GBP/USD continues to trade near 1.2200 after the release of new UK economic data.

UK Retail Sales were down 18.1% month-over-month and decreased by 22.6% year-over-year in April as virus containment measures put heavy pressure on consumer activity.

Excluding fuel, Retail Sales dynamics look a bit better, showing a decline of 15.2% on a month-to-month basis.

Yesterday, the market digested Flash PMI data for both the U.S. and the UK. In the U.S., Flash Manufacturing PMI rose from 36.1 in April to 39.8 in May, while Flash Services PMI grew from 26.7 in April to 36.9 in May.

In the UK, Flash Manufacturing PMI increased from 32.6 to 40.6 while Flash Services PMI jumped from 13.4 to 27.8.

In both countries, the services sector had a strong rebound as virus containment measures were relaxed. Services were the hardest-hit sector of the economy as lockdowns hurt them much more than manufacturing, and a rebound in services may signal that the job situation will soon start to improve.

The key question for GBP/USD dynamics is whether the Bank of England will decide to use negative interest rates to boost recovery.

At this point, the Bank of England relies on QE to improve the economic situation. If the rates go into the negative zone, GBP/USD will experience significant selling pressure.

Technical Analysis

GBP/USD failed to settle above the key resistance level at 1.2250 and continues to trend down. The nearest support level for the pair is located at 1.2170.

If this level is breached to the downside, GBP/USD will gain additional downside momentum and head towards the next support level at the low of the recent downside move at 1.2080.

I’d note that failure to settle above 1.2250 is a bearish signal for GBP/USD, so the downside scenario is more likely at this point.

On the upside, the pair will have to deal with the major resistance at 1.2250 and the resistance at the 20 EMA at 1.2280. Most likely, the whole area between 1.2250 and 1.2280 will serve as a material resistance area for GBP/USD.

If the pair gets above this level, it will gain upside momentum and head towards the next resistance level at the 50 EMA at 1.2360.

 

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