GBPUSD To Buy or Not to Buy

he market still has a strong negative sentiment on the British pound (GBP) post Brexit. But both technical and fundamental data point to a minor recovery on the biggest forex asset that was affected by the UK decision to exit the European Union - the GBPUSD pair. Now, there have been a series of positive data from the United Kingdom and, simultaneously, a series of negative data from the United States, which continue to impact this pair.

UK Economic Data

On Tuesday, the GBPUSD posted its biggest gain in two weeks, surging upwards over 120 pips. While this can be attributed to general US dollar weakness, there has also been positive data from the UK. On Tuesday, the Office of National Statistics released a series of encouraging data with the UK CPI (consumer price inflation) year on year coming in at 0.6%, against the previous as well as the market expectation of 0.5%. The Producer Price Index (PPI) month on month, came in at 3.3%, compared with the previous rate of 1.7% and the market expectation of 0.6%. Meanwhile, the Retail Price Index year on year came in at 1.9%, higher than both the market expectation of 1.7% and the previous rate of 1.6%.

US Economic Data

While the pound is now supported by the slightly shifting sentiment and positive data, the US dollar is continually being pressured by negative data. A series of negative economic reports from the US last week, weighed in on the greenback and the same continued this week as on Tuesday, the Bureau of Labor Statistics released the inflation figures which showed that the annual rate of inflation fell by 0.2% to 0.8% year on year. Also, the core CPI month on month came in at 0.1%, which was worse than both the previous rate as well as the market expectation of 0.2%. Despite comments from William Dudley, the NY Federal President, that a September rate hike is very much a possibility, the current negative data suggest that that is not likely. This makes a case for continued dollar weakness and simultaneous pound strength in the short and medium term.

Technically, the GBPUSD has long been in oversold territory and has started to trend higher with good momentum. With the current fundamentals also favoring a move higher, traders can apply a buy strategy targeting the 50-day SMA at 1.3217. Long term traders can target even higher at 1.3984 (the 200-day SMA). These trades can easily be executed on the GSI Markets platform, a leading forex broker in the industry.

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Important Note: Any information disclosed in this daily market analysis is gathered for informative purposes only, and should not be considered as an advice, recommendation or suggestion by the publisher.

 

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