GBP/USD extends slump sub-1.4100 as dollar rallies
GBP/USD has extended its decline after US CPI beat estimates with 4.2% while Core CPI came out at 3%. Earlier, UK GDP beat expectations with -1.5%. Volatility is rising.
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Pound/dollar continues benefiting from upside momentum on the four-hour chart and trades far above the 50, 100 and 200 Simple Moving Averages. However, the Relative Strength Index (RSI) is too close to 70 – flirting with overbought conditions. That makes every upside move limited in nature.
Resistance awaits at 1,4160, which is the fresh May high. Further above, 1.42 and 1.4240 are eyed.
Support is at 1.4110, the daily low, and then 1.4075, 1.4050 and the former triple top of 1.4010.
Is the downside correction over? Not so fast, as GBP/USD has yet to make a convincing pullback that would allow for further gains. Markets are in a risk-off mood due to several factors. The escalating conflict between Israel and Palestinian faction Hamas is the latest factor to dampen the mood, joining the ransomware attack that has paralyzed gasoline supplies to the US northeast.
However, the latest concern is of inflation rearing its ugly head in the US. While disappointing Nonfarm Payrolls showed the world's largest economy is cooling down, fears quickly reemerged. Are these concerns exaggerated? America publishes Consumer Price Index data for April later in the day, and core prices are set to top the 2% level. The calendar is pointing to a jump from 1.6% to 2.3% YoY.
The greenback's recovery and the damp mood in markets are showing that unless Core CPI leaps considerably beyond estimates, the dollar could snap back in a "buy the rumor, sell the fact" response. Will the pound rise?
Sterling has been benefiting from better than expected Gross Domestic Product figures for the first quarter in the UK. The economy shrank by only 1.5% during the first months of the year, which were dominated by the nationwide lockdown. Britain's successful vaccination campaign also supports the pound.
While the fundamental ingredients are in for cable to resume its rally, technicals point to overstretched conditions.
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GBP/USD has bounced as the BOE upgraded its outlook and horrible US jobs figures. UK GDP and US consumer figures promise another busy week in cable. Early May's daily chart shows bears are gaining some ground. The FX Poll is pointing to short-term falls before and upswing later.