- GBP/USD battle to stay in charge as 1.31 hopes fade over the horizon.
- It is a US dollar story in the FX space and cable is vulnerable to domestic uncertainties, including this week's GDP.
- From a technical perspective, there are still chances of a break to 1.3120 so long as support structure holds.
GBP/USD is attempting the upside but has been faded around 1.31 the figure ahead of the 1.3120 psychological level.
At the time of writing, cable is trading at 1.3068 having travelled between a range of 1.3019 and 1.3103.
Fundamentally, it has been much more of a US dollar story in the price action over the past several days of the greenback's decline.
Therefore, the spot market in the greenback has masked weakness in what is still a vulnerable pound pertaining to the coronavirus death toll, bad management by the government and what s expected to be a terrible second quarter for the economy.
When you combine the above with ongoing Brexit risks, sterling could be one of the most exposed to a serious jolt in a correction in the greenback.
Although net GBP shorts are off their recent highs, the tone is a far cry from the strength that persisted after the December UK general election, analysts at Rabobank explained.
Improved positioning could just be a reflection of not only the growth in dollar shorts but also how the market perceives the reluctance at a slightly less pessimistic Bank of England to use negative rates as a tool.
In an investment portfolio perspective, the UK could start to look cheap which would lend a hand to the pound in the short-term, but considering there are difficult trade negotiations ahead between the EU and UK in October, demand should be short-lived.
UK GDP will be a key focus
As for UK Gross Domestic Product data on the horizon, the services sector (80% of the UK economy) remains the big unknown through June, analysts at TD Securities explained.
After May's disappointment, some catch-up is inevitable, with IP and Construction helping support growth too (both at 10% MoM).
We still look for a dire 20Q2 growth number, however, roughly in line with the BoE's recent -21% QoQ estimate.
GBP/USD levels
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While holding current support, the outlook is bullish.
The bulls will be in a good position above the illustrated structures and a 15-min 21 moving average, as well as MACD keeping above the zero-line, target 1.3120.
Below the structures, the outlook is bleak for the bulls.
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