GBP/USD bulls back off as price consolidates the bullish correction
|- GBP/USD consolidates as traders look to the BoE for clues.
- US dollar could be on the verge of an upside extension.
GBP/USD is flat at the start of the week, consolidating the gains made over the past number of sessions as the price meets a tough area of resistance.
At the time of writing, cable is trading at 1.3822 and holding at the lows of the session so far, sliding from 1.3836.
From a fundamental standpoint, the positives are with the EU granting a delay to the chilled meat ban in Northern Ireland, which has helped to calm fears over trade tensins.
With that being said, it may not take much to kick up political dust around this theme so markets will remain on edge and a new round of tough EU-UK trade negotiations may not be too far over the horizon.
Meanwhile, the Bank of England is coming back into the market's agenda.
Bank of England Governor Bailey has been sounding extremely cautious of late.
The governor of the Old Lady has warned that the bank shouldn’t overreact to what he views as a temporary spike in inflation and has argued that a rapid recovery after lockdowns end is likely to fade soon.
Sounding familiar? The Federal Reserve has taken the same stance, yet markets are not so convinced which has fuelled the recent firmness in the greenback.
If there is an environment of continuous strong US data over the coming weeks, then that should lend support to the greenback which could be on the verge of a daily technical extension to the upside:
Meanwhile, noting weaknesses in the labour market, the BoE governor said, “our current view is that the economy will revert to the lower average underlying growth rates that we have seen since the financial crisis. Reverting to the pre-Covid pattern of lower trend growth will bring its own challenges.”
The next policy meeting is August 5 and no change is expected, especially while the lone hawk Chief Economist Haldane is due to step down beforehand.
In the week ahead, another speech by Andrew Bailey will be the focus and the UK's coronavirus lockdown updates.
GBP/USD technical analysis
Bulls take on the resistance on the daily chart and given the break of the April lows, there could be more from them towards the 1.3870s.
Failing that, the price would be expected to let to the downside.
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