GBP/USD Holds in a Tight Range Near April Low

It’s been a quiet start for GBP/USD as the pair has been contained in a tight range in early trading. Volatility may pick up later in the day as the US reports retail sales figures for April.

The markets have not reacted much to recent incoming data out of the US. Traders are aware of the negative impacts the Coronavirus has been having on the economy and much of this has already been priced in.

For this reason, today’s retail sales report may not have much of an impact on the FX markets, unless there is a notable deviation from the analyst forecast.

Analysts are expecting sales to have declined 12% in April, following the sharp 8.7% drop in March.

A bulk of this week’s volatility followed Fed Chair Powell’s speech on Wednesday where he emphasized the need for fiscal stimulus to help the economy recover from the adverse effects of the virus.

The markets are likely to continue looking for clues as to which country will ease policy next, whether that be through monetary policy or fiscal stimulus.

Comments from Bank of England Governor Bailey last week suggested that the UK may move next as he hinted that policymakers may look to take further action as soon as the June meeting. However, recent news out of the US shows that the government is open to further easing measures which stands to underpin the pound to dollar exchange rate.

Technical Analysis

There has been an important technical development in GBP/USD this week as the pair has broken down from a support level that had held it higher since late April.

The exchange rate broke below 1.2266 earlier in the week which triggered a double top pattern after the pair showed two failures near 1.2644 last month.

Momentum to the downside has been lacking at this point as the pair is clinging on to minor support from the April low at 1.2166.

At the same time, the pair looks dangerously close to a break down as there have not been signs of much buying going on near range lows.

GBP/USD has been trading within a range since late March and a range breakout often accompanies a sudden jump in volatility. This could be the case for the exchange rate if it continues to drop from here.

Bottom Line

• Volatility has dried up for GBP/USD with a lack of economic data out of the UK today.
• Earlier this week, the pair fell through important support to trigger a technical double top pattern although downside momentum has been lacking at this stage.