GBP/USD Forecast: Selling opportunity? Risk-off mood could send sterling back down

  • GBP/USD has bounced off 1.38 as the US takes a breather from gains.
  • Concerns about inflation and covid could send the pair back down.
  • Friday's four-hour chart is painting a mixed picture.

Pinging hell – Hundreds of thousands of Brits have received notifications saying "You need to self-isolate" due to exposure to someone tested positive for COVID-19. While some of these warnings may have been caused by Bluetooth signals passing through neighbors' walls, the increase in pings serves as additional evidence that the coronavirus spreading rapidly. Under such conditions, it is hard to justify further gains for GBP/USD.

The Delta variant's spread has resulted in over 48,000 confirmed cases in the UK on Thursday, days before the grand "Freedom Day" reopening on July 19. Hospitalizations and deaths are also on the rise, adding to concerns of an economic slowdown resulting from quarantines.

A slowdown might cause even hawkish members of the Bank of England to reconsider their stances. Michael Saunders was the latest BOE official to suggest the bank should end its bond-buying scheme, sending sterling temporarily higher on Thursday. Any dovish comments could weigh on the pound

The virus is also moving quickly in the US – resulting in increases in almost all states. However, America's caseload is rising from a low base and it could have a positive effect on the dollar – a safe-haven currency.

Worries about rising prices and how to tackle them are also contributing to a damp mood and a rush to the greenback. Federal Reserve Chair Jerome Powell said inflation is "uncomfortably high" but added that the situation of reopening the economy is "unique." Clouds of uncertainty are dollar-positive.

Apart from Britain's daily release of covid statistics, investors are eyeing two significant releases – Retail Sales and Consumer Sentiment from the University of Michigan. Economists expect overall shopping to have dropped in June, while the Retail Control Group is projected to edge higher.

See US June Retail Sales Preview: Analyzing major pairs' reaction to previous releases

In the preliminary consumer confidence figures for July, markets will likely focus on inflation expectations – the Fed is watching these surveys as well. Any sign that higher prices are anchored into people's mindsets could boost the dollar. 

See US Michigan Consumer Sentiment Index July Preview: Are inflation expectations changing?

All in all, there is room for cable to climb back down.

GBP/USD Technical Analysis

Pound/dollar is suffering from downside momentum on the four-hour chart but continues battling both the 50 and 100 Simple Moving Averages – resulting in a mxied picture as range-trading continues. 

Support awaits at the daily low of 1.3791, followed by 1.3750, a cushion from last week, and then by 1.3730. 

Some resistance is at the daily high of 1.3860, followed by 1.3910, which held GBP/USD down in recent days. Further above, 1.3935 and 1.40 are eyed.


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