GBP/USD: remains in the hands of the bears despite UK retail sales beat

• GBP/USD: supported by UK retail sales, but that is not enough to shake of the bears. 
• GBP/USD: bulls capped by the 100-hr SMA, but if that were to give, opens risk towards key 1.3450 (50-W SMA).

While there have been no sound bites from Carney who is due to be speaking now at the Society of Professional Economists' annual dinner, in London, GBP/USD is currently capped by the descending 100-hr SMA, although traders are buying the dip at the ascending 21-hr SMA at 1.3374 currently, making for tightly contained ranges. At the time of writing, GBP/USD is trading at 1.3387, with a high of 1.3422 and a low of 13349.

GBP/USD ran up to the 100-hr SMA on the release of better than expected UK retail sales data for April, (+1.6% M/M versus +0.5% expected). This event garnered extra attention from traders, waiting to scrutinise the numbers considering how of the mark the UK's economic performance has been in comparison to the BoE's projections.

• FOMC minutes secure market's expectations for a June rate hike of 25bps

As a result, the pound has succumbed to a bearish outlook given the setbacks the Q1 data performances have had for the BoE's path to normalisation of monetary policy. Indeed, many would argue that the value of the pound after the Brexit vote had gone a long way to creating the inflationary headwinds, encouraging a hawkish stance from within the MPC previously. However, at this stage, the data has not stacked up and best for a rate hike from the BoE in the immediate future have been swiped off the table, (odds of an Aug rate hike from the BoE more or less unchanged and still less than 50%). 

Political headwinds

Earlier in the week, 22nd May, The Bank of England Governor Mark Carney, Deputy Governor Dave Ramsden and members of the Monetary Policy Committee Gertjan Vlieghe & Michael Saunders, had all been testifying on inflation and the economic outlook before Parliament's Treasury Committee. While there was plenty to go through, one of the sentiments from MPC members that stood out was that headwinds from Brexit will eventually fade, according to the MPC member Vlieghe.

However, analysts at Scotiabank argued that market sentiment is facing the additional hurdle of an early June parliamentary vote on the EU Withdrawal Bill that was heavily challenged in the Lords recently. The BBC recently reported that the "cross-party Brexit committee said "absolute clarity" was needed on customs before the transition begins so the UK's withdrawal agreement can be ratified by MPs and MEPs." In the same article, it wrote, "It also warned that removing customs checks was "not the only challenge that must be resolved in order to secure frictionless trade", with large parts of trade also regulated through the EU's single market, which the UK is also leaving."

However, the main focus for traders at the moment stays with the divergence between the Fed and BoE. The FOMC minutes yesterday laid down the foundations for a rate hike as soon as next month, while it is evident that the BoE is on hold for the foreseeable future and one positive from today's retail sales data is not going to change that. 

"With consumer’s remaining cautious and borrowing appearing to have fallen substantially, a rate hike over the next few months is certainly not a done deal. As we heard from the BoE’s Vlieghe yesterday, the cost of waiting is not particularly high," 

analysts at ING explained.

GBP/USD levels

The technical readings lean bearish and are stacked up against the bulls. However, 1.3301 comes as the Dec 14 low and a potentially strong level of support. 1.3040 is a key downside target as the Nov 3 low. On the upside, a break of the 100-hr SMA at 1.3410 eyes for a test of 1.3450 (50-W SMA) and that would open the scope towards the 10-D SMA at 1.3478. The convergence of the 200/10-D SMAs (1.3550) comes as the upside target thereafter. The 1.3708 level at the 50% Fib of 1.3040-1.4377 remains compelling on the wide.