GBP/USD: Fed-BOE divergence hurts, eyes UK retail sales

Corrective rallies remain elusive as monetary policy divergence favors the USD.
Dismal UK retail sales print could push Sterling lower.

Omkar Godbole FXStreet Contributor

The GBP/USD has been oversold for three weeks now, according to the 14-day relative strength index (RSI), still the corrective rally remains elusive.

The situation is unlikely to improve significantly in the near-term, courtesy of the policy divergence between the Federal Reserve and the Bank of England (BOE).

The Fed is expected to hike rates in June and many believe it will hike rates by four times this year. Meanwhile, the markets are pricing-in a one-in-three chance of the BoE raising borrowing costs in August, down from 50/50 earlier this week. Thus, the corrective rally remains elusive despite oversold conditions.

The monetary policy divergence will likely widen further in a GBP-negative manner if the UK retail sales, scheduled for release at 8:30 GMT, miss estimates.

Meanwhile, an above-forecast reading might put a bid under the oversold Sterling, although a sustained rally would require BOE to adopt a hawkish stance.

GBP/USD Technical Levels

As of writing, the currency pair is trading at 1.3360. The immediate resistance is seen at 1.3402 (5-day MA), 1.3460 (10-day MA) and 1.35 (psychological hurdle). Meanwhile, support is seen at 1.3305 (previous day's low), 1.3268 (August 3 high), and 1.3221 (Nov. 25 low).

	TREND INDEX	OB/OS INDEX	VOLATILY INDEX
15M	Bearish	Neutral	Low
1H	Bullish	Neutral	Low
4H	Bearish	Neutral	High
1D	Bearish	Oversold	Low
1W	Bearish	Oversold	Low
Updated May 24, 03:45 GMT

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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