- GBP/USD has steadied above 1.1800 during the European session.
- A weaker-than-expected US Retail Sales data could weigh on the dollar.
- Investors reassess the Fed's rate outlook on Governor Waller's dovish comments.
GBP/USD has recovered and steadied above 1.1800 early Friday after having suffered heavy losses on Thursday. Investors await key macroeconomic data releases from the US and the dollar could face selling pressure in case the probability of a 100 basis points (bps) rate hike in July continues to decline.
The dollar rally that was triggered by hot US inflation data on Wednesday stayed intact on Thursday and the US Dollar Index (DXY) reached its strongest level in nearly 20 years at 109.29 during the American session.
After Federal Reserve Governor Christopher Waller said that markets may have gotten ahead of themselves by pricing a 100 basis points rate hike in July, however, the DXY erased a large portion of its daily gains. Regarding the July rate decision, Waller said he was in favour of a 75 bps increase but noted that he could lean toward a bigger hike if retail sales and housing data come in stronger than expected.
Retail Sales in the US are expected to increase by 0.8% on a monthly basis in June following May's 0.3% contraction. If this data comes in stronger than expected, it could help the dollar regather its strength. Following Waller's remarks, the probability of a 100 bps rate hike in July fell toward 50% from 90%. Hence, the DXY is likely to gain traction in case the sales data ramp up the 100 bps rate hike bets.
Later in the session, the University of Michigan (UOM) will release its Consumer Sentiment Survey for early July. Rather than the headline Consumer Confidence Index, the long-term inflation expectations component of the survey should trigger a significant market reaction. Following the decision to hike the policy rate by 75 basis points in June, FOMC Chairman Jerome Powell said rising long-term inflation expectations in the UOM's survey were one of the factors behind the aggressive rate increase. In June's final version, the 5-10 year ahead inflation expectation stood at 3.1% and the dollar rally could pick up steam if there is an uptick in that figure. On the other hand, the greenback could face additional selling pressure ahead of the weekend on a soft print.
GBP/USD Technical Analysis
GBP/USD continues to trade within the descending regression channel coming from late June and the Relative Strength Index (RSI) indicator on the four-hour chart stays below 50, suggesting that the bearish bias stays intact.
On the downside, 1.1800 (psychological level, static level) forms first support before 1.1760 (static level from March 2020, July 14 low) and 1.1700 (psychological level).
Resistances are located at 1.1850 (upper limit of the descending channel, 20-period SMA), 1.1900 (psychological level) and 1.1930 (50-period SMA).
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