Is The GBP Setting Up For A Break Beyond The 1.3 barrier?

GBPUSD edged up from a one-week low of 1.30637on Wednesday, thanks to some positive data from the UK.

According to the report from the Office for National Statistics on July 20th, Britain’s unemployment rate fell to a fresh 11-year low of 4.9% in May, instead of staying at 5.0% as expected by economists. In the same period last year, this rate was at 5.6%. The proportion of economically inactive people between the ages of 16 and 64  was reported at 21.6%, the lowest level since 1971.

The data also reported that the average earnings index(which tracks the change in the price businesses and government pay for labor), registered an increase of 2.3% in the quarter ending in May 2016(on a year on year basis). This compares to the previous reading of 2.0%. After eliminating bonuses, average weekly earnings for advanced 2.2% from one year earlier.

These latest data helped shore up the British pound, and the currency inched up a little from the lows of the week. However, worries about future economic prospects as the UK prepares to leave the EU, were still rising among investors. This in turn  continues to weigh on the sterling.

In other data reported today from the Markit institute, the Household Finance Index plunged to a two-and-half year low of 47.0 this month, compared to a reading of 49.3 in June. Business and consumer confidence in the UK has suffered a hefty knock since the end of last month and the effect of the damaged sentiment on the economy  is showing up in predictions of a significant slowdown or even a recession.

The US dollar has been in a solid up-move for the past few days, as markets are pricing that the Federal Reserve Bank is likely to raise the US benchmark rate before the end of the year. The odds of rate hike in September edged up to 18.8%, and stand at 20.1% for the November meeting.

Later today, the Energy Information Administration is scheduled to report US Crude oil stockpiles for the week ending on July 15th. The number of barrels of crude oil held in inventory by commercial firms is expected to have fallen by 1.3 million barrels in the past week.


Fig. GBPUSD D1 Technical Chart

The sterling is rising slightly against the greenback, in a corrective bounce from a low of 1.30601 hit earlier this week. The RSI (14) has gotten out of the oversold territory but still hovers near the lows. The price is expected to consolidate for some time and thereafter may resume its move lower. Shorts on GBPUSD are encouraged.

Trade suggestion

Sell limit at 1.31756, Stop loss at 1.32841, Take profit at 1.30259

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