GBP/USD approaching 1.2630 – what’s next?

Justin Freeman

The British pound looks set to remain under the spotlight in the foreign exchange markets in the coming days – for a variety of both technical and fundamental reasons.

The currency has in many ways experienced a tumultuous few months thanks to the impact of Brexit.

Boris Johnson’s government has committed to taking the UK out of its current trade arrangement with the EU by the end of the year, which has in turn hastened worries that a ‘no deal’ Brexit cliff edge could still happen.

For traders looking to take a long-term perspective, this is far from ideal given that the Brexit issue may not be resolved until well into 2021.

This was then compounded by the economic consequences of the coronavirus pandemic, which have hit Britain – like all countries – hard.

As a result, the pound has found itself rarely performing well for long periods of time – except in the most risk-on of situations.

According to technical indicators, the next significant milestone for the currency in its dollar pair will be the 1.2630 mark.

If it managed to surpass that, analysts say, the next target level would be 1.2814.

The single European currency’s overall positive performance on Monday due to the expected arrival of a stimulus package from the EU had an impact on the pound at first.

The EUR/GBP pair started off well on the day but later found itself dipping.

Later in the week, the pound will need to deal with a purchasing managers’ index (PMI) release, which will give some indicator of the health of the British economy.

These figures, which are preliminary, will be out on Friday at 8:30am GMT and are expected to show both manufacturing and service sector PMI information.

However, Friday’s GBP/USD and wider GBP action will actually begin earlier in the day.

At 6am GMT, for example, there will be a retail sales release for the month of June.

On a year-on-year basis, this key figure is expected to show a change from -13.1% to -6.2%.

Interestingly, however, the change in the month-on-month figure is expected to be negative.

There, the metric is due to go from 12% to 8.5%.

The week will also be action-packed from the point of view of some of the major institutions with the power to move the pound’s performance in the markets.

The Bank of England’s Jonathan Haskel, who sits on its Monetary Policy Committee, is due to speak at 11am GMT on Thursday morning.

Pound traders will most likely watch this for clues as to what the Bank of England might choose to do next if the coronavirus continues to impact on the country’s economy.

This will follow an industrial trends survey from the Confederation of British Industry (CBI)

This is due to provide some perspectives from top figures in the manufacturing sector on how the industry is performing at the moment.

This is due to be released at 10am GMT on Thursday.

Justin Freeman

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