GBP/USD: dollar is losing investors' support

Current trend

The British currency continues to trade in the wide upward channel against USD.

After long growth in May the pair demonstrated serious downward correction. Later on the pound felt the support of its investors again and went up. The main catalysts for this movement were trade tendencies and a positive fundamental background in the UK in the late June. Recent statistical data indicates beneficial prospects of further restoration of the UK economic growth rate; and the head of the Bank of England points out the possibility of winding up stimulation in case of further improvement of the economic situation. At the same time, the USA had a number of negative releases, and FOMC representatives criticized too quick increase of interest rate and liquidation of stimulation measures. All these factors allowed the British currency to show growth in the end of June.

In the beginning of the current month a downward correction wave occurred, but it was much weaker than before. In this situation the pound feels secure, while USD is losing investors’ interest. Last week the US currency was supported only by nonfarm payrolls data.

This week will show whether the pair will be able to consolidate in the upward trend or long correction to the lower border of the range at 1.2365 may be expected. The UK labor marker data are due in the middle of the week, and the USA will respond with releases on industrial output, inflation pressure, retail sales, and main indexes.

Support and resistance

In the medium term the possibility of the pound’s consolidation in the upward trend against USD is high due to high demand for GBP. Potential growth target levels are 1.3200, 1.3285. US monetary policy contradicts fundamental indicators and is, perhaps, the main factor that drives investors away. Yet another increase of rates and the possibility of further winding up of stimulation measures are followed be negative data on key US economy sectors. The sectors that directly influence FOMC decisions about changing the monetary policy deserve special attention. The labor market is unstable, which is confirmed by mixed data, and the target level of inflation is unreachable in the current situation. That is why the investors are looking for alternative assets putting great pressure on USD.

Technical indicators show possible transition of the pair into the wide consolidation stage. MACD indicates lower volumes in the pair, and Bollinger Bands are located horizontally.

Support levels: 1.2830, 1.2770, 1.2700, 1.2620, 1.2560, 1.2500, 1.2365, 1.2285, 1.2125, 1.1990.

Resistance levels: 1.3040, 1.3075, 1.3150, 1.3200, 1.3250, 1.3285, 1.3370.

Trading tips

Long positions may be opened from the current level with targets at 1.3200, 1.3285. Pending long orders may be placed from the marks  1.2770, 1.2700 in hope for longer correction. Stop-loss should be placed at 1.2640.