GBP/USD – Buy or Sell?

GBP/USD – Buy or Sell?

GBP/USD – Buy or Sell?

From a fundamental perspective, GBP/USD should be trading lower. Consistently softer UK data casts doubt on the hawkish comments from the Bank of England. Service, manufacturing and construction sector activity slowed in the June while industrial and manufacturing production turned negative. This along with a stronger pound in May caused the trade deficit to increase. The U.S. dollar should rise into and after Janet Yellen’s semi-annual testimony but traders should not diminish the significance of BoE’s hawkishness. Since their last monetary policy meeting, we’ve seen Bank of England Governor Carney join McCafferty, Haldane, Saunders and Forbes in supporting less policy accommodation. That means 5 of the 8 members of the Monetary Policy Committee could vote for a rate hike this year. Three have already done so and it may not be long before Carney and Haldane follows suit. Bank of England members Haldane and Broadbent are scheduled to speak tomorrow. We know where Haldane stands but if Broadbent joins the chorus of central bankers supporting policy normalization we could see GBP/USD rise back to 1.30. Broadbent is the longest serving MPC member and has never dissented in the 6 years he’s been on the committee. The last we heard from him, he expressed caution about the weakening pound and Brexit although these latest comments are more than a month old. If he is dovish, it would be just the excuse sterling traders need to send the pair below support down to 1.28.

Technically, lower highs and lower lows signal losses for GBP/USD but Friday and today’s decline stopped right at the 50-day SMA, which holds for the time being. For the technical picture to turn negative, we would need to see GBP/USD drop below 1.2850, at which point a move down to 1.2780, the May low becomes probable. If GBP/USD holds above this level, then the pair could drift back up to 1.30.

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