GBP/USD Forecast: Bears take a breather but not for long

No data, no problems – the pound manages to recover as it gets a break from disappointing data. US dollar weakness also helps. Will it continue? The next moves depend on consumer statistics.

Sterling suffered on Wednesday after inflation fell to 1.3% yearly – the weakest in three years. The disappointing data joined devastating growth – or negative growth – in November and dovish comments from members of the Bank of England. There is growing speculation that the BOE will cut rates in its upcoming meeting in two weeks' time. 

Nevertheless, GBP/USD has recaptured 1.30. Why?

Apart from the lack of new UK figures on Thursday's economic calendar, cable is rising in response to the dollar's weakness. The market mood remains upbeat after the US and China signed Phase One of the trade deal.

While the agreement fails to remove all tariffs and is contingent on the implementation of massive Chinese purchases of US goods, markets remain upbeat. The risk-on mood is weighing on the safe-haven dollar.

Retail sales focus

The US releases consumption data for December, which also includes some of the November's Black Friday sales. The shopping festivity came out late last year and some of the data will only appear in the upcoming report. After mediocre figures last time, significant rises are expected. 

See Preview: ‘Twas the month after Christmas

Traders will have to wait until Friday to see the results of Britain's Christmas sales with some seeing the figures as the tipping point toward a rate cut by the BOE.

Tensions are also mounting ahead of next week's Purchasing Managers' Indexes for January. The first forward-looking figures for after the UK's December elections may shed are another piece in the puzzle ahead of the critical January 30 decision. 

Overall, speculation about the BOE, US retail sales, and trade headlines are set to move the pound. 

GBP/USD Technical Analysis 

Pound/dollar has bounced off the long-term uptrend support line – dating back to November – but remains below the 50, 100, and 200 Simple Moving average. Momentum and the Relative Strength Index are balanced.

Overall, the trend is moderately bearish.

GBP/USD is capped at 1.3060, which is the daily high and where the 50 SMA meets the price. It is followed by 1.31, 1.3125, 1.3170, and 1.3210, which were all high points on the way down.

Support awaits at 1.3010, a swing low from last week, followed by 1.2950, the weekly low, and 1.29, a trough around Christmas.