GBP/USD Recovers to 1.2400 Handle as the Dollar Falters

The US dollar staged a breakout attempt as the trade-weighted index (DXY) briefly pierced to a 4-week high yesterday. However, the upward momentum was not sustained and the subsequent weakness aided GBP/USD in its recovery.

Equity markets gained yesterday with SPY closing 1.28% higher although rising Coronavirus cases in the US may put a cap in the recent rise in risk appetite.

A Reuters report revealed an additional 47,000 new cases in the US with Arizona, Texas, and California getting hit particularly hard.

While cases are rising at a rapid clip in the US, the UK is set to ease lockdown restriction further on July 4. This should aid the economy in its recovery after a sharp contraction in April.

The latest survey data from purchasing managers in the manufacturing industry indicated that the sector is once again expanding after contracting at a record pace in April. The UK manufacturing PMI printed at 50.1 in June, in line with the initial estimate.

House prices in the UK showed negative growth for the first time in eight years. The latest house price index, published by Nationwide, revealed a decline of 0.1% in house prices in the year to June from a rise of 1.8% in the year to May.

On a month over month basis, house prices declined 1.4% in June and 1.7% in May.

Technical Analysis

GBP/USD has recovered after finding support yesterday but is seen facing resistance from the upper bound of a declining trend channel. The channel has encompassed price action since early June.

A sustained break might suggest that the pair is gearing for a broader recovery. It might take a break above the 200 moving average on a 4-hour chart, currently at 1.2429, for this to materialize.

While within the trend channel, a bearish outlook is favored for the pair. Support in the session ahead is found at 1.2343.

Bottom Line

• Economic data from the UK shows the economy recovering. The further easing of lockdown restrictions on Saturday is expected to help the recovery extend on its momentum.
• GBP/USD shows upward momentum since yesterday, although from a broader perspective, the pair remains within a downtrend that started on June 10.

For a look at all of today’s economic events, check out our economic calendar.