GBP/USD: Resistance line at 1.42 tilts the risks to the downside

GBP/USD has been advancing as the dollar fails to benefit from higher US inflation. Nonetheless, the dollar weakness is insufficient to break above downtrend resistance at 1.42. On Friday, responses to UK GDP and US Consumer Sentiment are set to rock markets, FXStreet’s Analyst Yohay Elam briefs.

US dollar may be down but not out, while sterling is suffering from various factors

“Investors have been shrugging off the jump in US inflation to 5% and trust the central bank to see through these bumps, seen as ‘transitory.’ The Federal Reserve may hint that it would taper bond-buys sometime in the future, but not anytime soon. This conviction sends stocks higher and Treasury yields lower, with the latter dragging the dollar down.”

“The UK's return to normal will likely be delayed for longer. According to the British press, UK Prime Minister Boris Johnson is contemplating a four-week delay to "Freedom Day" – the last stage of removing restrictions that was scheduled to June 21. Holding the economy back is weighing on the pound. Output expanded by 2.3% in April, marginally lower than expected but undoubtedly a rapid clip.”

“Later in the day, the University of Michigan publishes its preliminary read of US Consumer Sentiment figures for June. A minor bounce is on the cards.” 

“Some support is at 1.4160, which is where the 100 SMA hits the price. It is followed by 1.4110 and 1.4080.”

“Resistance awaits at 1.42, which is where the downtrend resistance was formed, and it is followed by 1.4220 and 1.4250, the latter is the 2021 peak.”