GBP/USD Forecast: Pound benefits from risk flows despite weak UK data

GBP/USD has gained traction in the early European session on Monday.
Risk-positive market atmosphere is helping the British pound find demand.
Next recovery target for the pair is located at 1.1730.

Eren Sengezer FXStreet

Fueled by the broad-based selling pressure surrounding the dollar at the start of the week, GBP/USD has gathered bullish momentum and climbed to its highest level since late August at 1.1700. The pair looks to extend its recovery as technicals turn bullish.

Earlier in the day, the data published by the UK's Office for National Statistics showed that the Gross Domestic Product expanded by 0.2% on a monthly basis in July, compared to the market expectation for a growth of 0.5%. Industrial Production contracted by 0.3% and the Manufacturing Production increased by only 0.1% in the same period with both figures falling short of analysts' estimates.

Despite the disappointing UK data, the upbeat market mood helped the British pound find demand. The UK's FTSE 100 Index is up more than 1% in the European morning and US stock index futures are up between 0.5% and 0.7%. In case risk flows continue to dominate the financial markets in the second half of the day, the dollar is likely to stay on the backfoot. The US Dollar Index, which lost 0.6% on Friday, is already down 1% on a daily basis.

The US economic docket will not be featuring any high-tier data releases. The outcome of the 10-year US Treasury note auction at 1700 GMT could impact the dollar's valuation later in the day. The 10-year US Treasury bond yield is little changed on the day at 3.3%. A sharp decline in yields after the auction could hurt the dollar and vice versa.

Meanwhile, it's worth noting that the Bank of England (BoE) has postponed its interest rate announcement by a week to September 22.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the four-hour chart rose above 60 and GBP/USD climbed above the 100-period SMA for the first time in nearly a month, reflecting the bullish bias. The pair seems to have met interim resistance at 1.1700 (psychological level). Above that level, 1.1730 (Fibonacci 38.2% retracement level of the latest downtrend) aligns as next bullish target before 1.1800 (psychological level) and 1.1830 (Fibonacci 50% retracement).

On the downside, first support is located at 1.1650 (100-period SMA) before 1.1600 (psychological level, Fibonacci 23.6% retracement) and 1.1550 (50-period SMA, 20-period SMA).

Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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