Pound Edging up despite Futile Brexit Talks on Positive UK Stats

Cable started this week with little volatility, slightly edging down below the local support at 1.3090 on Monday. However, a major pullback through the 1.3127 resistance on Tuesday left the GBP/USD pair at 1.3151 at session’s close. With next to no data from the UK in this week’s first two days and positive home sales in the US on Monday, the upward dynamics were largely accounted for by the highly positive stats from the UK last week. The actual numbers were the following (actual versus expectations): the annualised retail sales up 1.4% versus 0%, the annualised core retail sales – excluding fuel sales  – up 3.1% versus 1.5%, the services PMI was 60.3 versus 57.1, the manufacturing PMI was 55.3 versus 53.8 expectations.

Also, Tuesday’s spike to 1.3151 happened on the back of last week’s another collapse in Brexit deal talks between the EU and the UK with Michael Marnier – EU’s chief Brexit negotiator – saying in his press conference on Friday that ‘at this stage an agreement between the UK and the European Union seems unlikely.’ This allows us to assume that traders believe in the recovery of the British economy even in spite of such fundamental disruption for the UK’s economy that a no-deal Brexit will produce.

Both Brexit talks and the US Congress will resume on the week of the 7th of September. Then more light will be shed on the situation in the negotiations over the second aid package in the US: if an agreement on support measures is reached, the greenback is likely to put pressure on sterling. Likewise, any progress in Brexit talks will ease pressure on the British currency. Until then economic reports and technical levels will largely determine the price action of GBP/USD cross rate.  

What to expect at August’s end

With little important economic data from the US and UK coming this week, the main reports include the durable goods orders, personal consumption expenditure (PCE) price index and annualised GDP for quarter 2 in the US. The Fed’s chairman Jerome Powell’s speech is scheduled for Thursday, and the speech of the Bank of England’s Governor Andrew Bailey is expected on Friday. 

GBP/USD trading is likely to be reasonably technical this week. Therefore, the key levels in daily proximity – 1.3090 and 1.3255 – are likely to be the trend setters for cable for the rest of August. If 1.3090 gets breached down, the next daily support level is at 1.3021. At present, this is not in view. Another important technical thing to watch is the 50-period SMA on the 4-hour and daily timeframes.On Monday, it caused clearly identifiable resistance on the 4-hour chart and now, having been broken through to the upside, it may give support to cable.

As for economic data, the US durable goods orders due on Wednesday and GDP for Q2 due on Thursday should be well considered while trading GBP/USD this week. The speeches of the two heads of the Federal Reserve and the Bank of England are also in focus.

This far, having closed above the 1.3227 daily level on Tuesday, cable looks set to reach the 1.3250 mark first before the next big move. A subsequent downside move to 1.3127 is an option.