GBP/USD awaits UK Q2 GDP to break the monotony below 1.3900

• GBP/USD fades bounce off monthly low, indecisive of late.
• Brexit jitters, US inflation data and covid headlines fail to offer any meaningful signals.
• BOE hawks seek strong data to confirm tapering concerns but Delta covid variant challenges the bulls.
• US PPI, Jobless Claims also become important for fresh impulse.

GBP/USD treads water around 1.3865-70 during early Thursday as traders await the key UK data for fresh impulse. The quote bounced off a monthly low the previous day but struggles to carry the rebound amid a lack of major data/events in Asia.

The US dollar weakness could be cited as the key catalyst for the GBP/USD pair’s earlier rebound whereas mixed inflation data and Fedspeak offer further details on the market’s skepticism over the moves. It should be noted, however, that chatters over US-China diplomatic talks and a lack of major updates on the covid, as well as US stimulus front, not to forget pre-data caution, also challenge immediate moves of the GBP/USD pair.

Bloomberg signaled US Treasury Secretary Janet Yellen’s first visit to China, at this diplomatic position, followed by local media suggesting US Secretary of State Sherman’s visit to Beijing, but investors failed to welcome the upbeat news amid the covid woes in China and the US. On the same line were chatters concerning the relation of the Aussie conditions to the COVID-19 as the latest figures ease and the government pushes hard for the vaccinations. Additionally, US President Joe Biden’s indirect rejection of the challenges to budget talks, earlier raised by Republicans, was also ignored as it’s a long way before anything concrete develops.

The US Dollar Index (DXY) failed to extend the three-day uptrend beyond April’s high as the US Consumer Price Index (CPI) data backs the Federal Reserve’s (Fed) “transitory” outlook on inflation. The headline CPI remained unchanged at 5.4% YoY versus 5.3% forecast whereas the core CPI, ex Food & Energy, eased to 4.3% from 4.5% previous readouts. Also favoring the US dollar pullback could be the comments from Fed Reserve Bank of Kansas City President Esther George suggesting the road ahead to policy normalization “is likely to be a long and bumpy,” even her early comments favored tapering.

At home, UK Health Minister Sajid Javid confirmed, like The Guardian, that the fully-vaccinated British people above 18s need not self-isolate. However, Brexit woes, signaled by the UK Express, challenges the GBP/USD buyers. “The EU appears to be readying a final ultimatum to the UK as the bloc's patience is "wearing thin" over a command paper to renegotiate the Northern Ireland Protocol, a senior MEP (Member of European Parliament) has said,” per the news.

Against this backdrop, US 10-year Treasury yields add 1.7 basis points (bps) to 1.342% whereas US stock futures remain sluggish around record top by the press time.

Looking forward, monthly prints of the UK GDP, Manufacturing Production and Industrial Production, as well as the preliminary readings of the second quarter (Q2) GDP, will direct immediate GBP/USD moves. Given the upbeat expectations from the scheduled figures, the cable may extend the latest rebound as a positive outcome backs the BOE hawks. However, the US Producer Price Index (PPI) for July and the Weekly Jobless Claims, coupled with Fedspeak, will also be important to watch.

Technical analysis

The cable pair dropped to the lowest in 12 days before bouncing off 1.3802 the previous day. In doing so, the quote portrays a bullish flag formation on the four-hour (4H) play. In addition to the upside favoring chart pattern, the pair’s sustained trading above 200-SMA and steady RSI, modest as well, keep GBP/USD buyers hopeful. However, a convergence of the flag’s upper line and early July’s top, surrounding 1.3910, becomes a strong resistance whereas 200-SMA around 1.3830 will initially challenge the pullback moves before the support line of the flag, near 1.3810, stops the short-term sellers.