During Tuesday's European Trading Session, the GBP/USD extended its previous session losses and dropped towards the 1.3015 level, mainly due to the broad-based US dollar strength, triggered by the upbeat market sentiment. The ever-increasing coronavirus cases continued to fuel worries that the second wave of COVID-19 cases could undermine the US economy, which also kept the US dollar under pressure. However, the gains in the currency pair rather unaffected by the Brexit woes, and downbeat comments from the BOE policymaker. In the meantime, the disappointed UK unemployment data become the key factors that capped further upside in the currency pair. Currently, the GBP/USD currency pair is currently trading at 1.3083 and consolidating in the range between 1.3055 - 1.3096.
At the data front, the UK has shown mixed labor figures. The unemployment rate remained pessimistic at 3.9% in June due to the government's furlough schemes. Wages sank by 1.2% when including bonuses and -0.2% when excluding them. Other than this, the Bank of England (BOE) Deputy Governor Dave Ramsden recently showed a willingness to escalate the Quantitative Easing (QE) if the economy shrinks again. As well as, the BOE recently introduced the cautious tone while raised its economic forecasts during last Thursday's monetary policy meeting. This statement initially weighed on the cable pair.
At the Brexit front, the UK Tory government recently has warned to take action against illegal French fishermen after the European Union transition period, which eventually disturbing the on-going Brexit talks. However, these kinds of uncertainties failed to drag the currency pair lower, at least for now.
Across the pond, the UK-Japan trade negotiations also not showing any sign of progress. Meanwhile, the on-going fears of recalling the lockdown amid coronavirus (COVID-19) becomes the key factor that kept the traders cautious.
The UK government had previously promised a 1000 pound per employee bonus to any company that would bring back the furloughed staff, whereas the furlough scheme will end in October. An increased number of people applied for unemployment benefit as the furlough scheme is near to end, weighed heavily on Great Britain Pound, and hence, GBP/USD pair dropped.
Meanwhile, the trade talks between the UK & Japan stalled over the issue of blue cheese. Mr. Boris Johnson and the Tokyo government wanted to finalize the post-Brexit deal by the end of the month. It is reported that trade talks have reached a consensus in most areas except the blue cheese, aka Stilton Cheese.
The UK trade Secretary Lizz Truss desired Britain to export more blue cheese to Japan as part of the deal, but Tokyo has been reluctant to open up its markets to English blue cheese that is popular in English Midlands.
The paused UK-Japan deal also weighed on British Pound and added pressure on the GBP/USD prices on Tuesday.
On the other hand, the US PPI & Core PPI data for July came in favor of the US dollar. The Core PPI has risen to 0.5% from expected0.1%. The PPI in July also rose to 0.6% from the expected 0.3%. The better than expected data pushed the US dollar that ultimately weighed on GBP/USD pair.
Daily Technical Levels
Support Resistance
1.3016 1.3107
1.2983 1.3165
1.2925 1.3197
Pivot point: 1.3074
On the technical front, the GBP/USD pair is trading at 1.3050 level, holding above 1.3015 support level. The cable has formed a symmetric triangle pattern that keeps it supported at 1.3015 and provides resistance at 1.3100 level. Traders seem to wait for a breakout before placing any further trades. Therefore, the violation of the 1.3014 level can extend selling unto 1.2914 level while bullish breakout of 1.3136 level can drive buying until 1.3196. Good luck!