- GBP/USD defends the first weekly gain in four.
- Risk-on sentiment underpinned the corrective pullback despite absence of major positives from the UK.
- Political jitters in Britain, Brexit woes and economic hardships for the UK probe buyers.
- US Durable Goods Orders, Pending Home Sales awaited for today, central bankers’ speeches at ECB Forum will be the key.
GBP/USD manages to begin the week’s trading on a positive side around 1.2280, after witnessing the first weekly gain in four. That said, the Cable pair’s latest gains have more to do with the US dollar weakness and the risk-on mood than the improved fundamentals relating to the UK.
Starting with the latest news concerning the UK’s readiness to alter the Brexit deal, especially relating to the Northern Ireland Protocol (NIP), despite the European Union’s (EU) opposition. “British Prime Minister Boris Johnson's government will press ahead on Monday with legislation to scrap rules on post-Brexit trade with Northern Ireland, setting up further clashes with the European Union,” said Reuters.
UK Foreign minister Liz Truss said during the weekend, per Reuters, “A negotiated solution has been and remains our preference, but the EU continues to rule out changing the Protocol itself – even though it is patently causing serious problems in Northern Ireland – which therefore means we are obliged to act." In a reaction, the EU's ambassador to Britain said on Sunday, per Reuters, that Britain's plans were illegal and unrealistic.
Elsewhere, UK PM Boris Johnson mentioned that he aims to remain in power until the middle of the next decade despite calls to quit. The Conservatives lost two parliamentary by-elections and the same exerted more pressure on UK PM Johnson to leave the position after the partygate scandal. “The by-election defeats suggest the broad voter appeal which helped Johnson win a large parliamentary majority in December 2019 may be fracturing after a scandal over illegal parties held at Downing Street during coronavirus lockdowns,” said Reuters.
Talking about data, the UK Retail Sales for April improved from -0.7% expectations to -0.5% MoM, versus downwardly revised 0.4% prior. However, the slump in the yearly figures, to -4.7% from -5.7% previous readings and -4.5% forecast, seems to weigh on the GBP/USD prices of late.
On the other hand, International Monetary Fund (IMF) Managing Director Kristalina Georgieva crossed wires during the weekend while saying, “Further negative shocks would inevitably make US economic situation ‘more difficult’.” The IMF revised down US 2022 GDP forecasts to 2.9% versus 3.7% predicted earlier. It’s worth noting that the jump in the US New Home Sales for May, by 10.7% versus April’s revised figures of -12.0%, joined the record low print of the final reading of the University of Michigan's Consumer Sentiment Index for June, to 50.0 from 50.2 initial estimates, also drowned the US dollar on Friday.
It should be noted that the recently softer US data and inflation expectations seemed to have weighed on the greenback while fueling the risk appetite. However, the optimists are still away from the table ahead of the US Durable Goods Orders for May, expected 0.1% versus 0.5% prior, as well as the Pending Home Sales, expected -2.0% versus -3.9% prior.
Above all, Wednesday’s debate of the US and the UK and the European central bankers at the ECB Forum on Central Banking will be a crucial event for the week to note.
Technical analysis
Although a six-week-old horizontal support zone around 1.2165-55 challenges short-term GBP/USD sellers, a downward sloping resistance line from late April, close to 1.2390 by the press time, restricts the buyer’s entry.