August 20, 2021 14:15:43

We finish a turbulent few days with a look at GBP pairs after the UK data dump this week. Sterling has suffered and is now on a 1.7% decline amid widespread losses versus the greenback. In fact, yesterday’s daily loss was the biggest decline in two months. The economic releases have been mixed with job data slightly beating expectations and inflation missing both the headline and core estimates. The BoE does expect CPI to rebound strongly just above 4% by year end. Today’s retail sales were also disappointing with the data showing no reopening boost amid poor weather.

The issues for the pound are broader in many senses as the dollar is strengthening as confidence in the global recovery worsens. The fragile risk environment due to increasing infections is not helping the benefits GBP was enjoying via a more hawkish central bank. The furlough scheme ends next month, and the Old Lady’s September statement will be instrumental in telling us if there is still a commitment to the baseline scenario of an increase in rates next year. Similarly for the Fed, the near-term focus will turn to Jackson Hole and any possible encouragement around a taper announcement or possible delay due to the Delta variant uncertainties.

GBP/USD beaten down near to recent lows

We wrote at the start of the week how cable was struggling to move higher with the falling trendline from June repelling prices on numerous occasions. Four days of declines in five means GBP/USD is now nearing a test of 1.36 and major support at the July low of 1.3571. There is also a retracement point of its losses between March 2020 and June 2021 at 1.3579.

The weekly close is key with the March and April bottoms around 1.3660 set to act as near-term resistance/support depending on how we end up today. The 200-day SMA is above here at 1.3790. Although we are touching the lower band of the Keltner channel, momentum is clearly bearish and other indicators are not oversold so sellers will look to target levels further out like the December 2019 high at 1.3514.

GBP/CHF at the bottom of the range

With CHF bid up this week as a premier safe haven currency, this pair has moved from the top of its recent range around 1.28 to the bottom end at 1.2565. Prices have been stuck in this range more or less since April. The important issue here is that the longer price action tracks sideways and compresses, the greater the eventual breakout and price expansion.

That said, the pair is being supported by the 200-day SMA at present just above 1.25. Buyers will want a positive close above the July low at 1.2501 as well, to be slightly more confident of a range trade play. But again, we are not oversold and momentum is obviously pointing towards lower prices. Targets below include 1.24 and 1.2375.