GBP/USD Daily Forecast – Battle At Key Resistance Level

GBP/USD tries to stay above 1.2250 after the release of UK economic data.

UK Inflation Slips Into The Negative Territory
GBP/USD tries to hold above the key resistance level at 1.2250 following the release of new portion of UK economic data.

UK Inflation Rate was -0.2% month-over-month in April compared to consensus of -0.1%. Core Inflation Rate was 0.1% compared to analyst estimate of 0.2%.

In both cases, pricing pressure was softer than expected. This means that demand was insufficient enough to boost prices. Such data increases chances of negative interest rate policy which is being evaluated by the Bank of England.

Other pricing metrics also showed deflationary tendencies. PPI Output declined by 0.7% month-over-month compared to analyst consensus which called for a decline of 0.5%.

Retail Price Index was flat month-over-month in April but current trends signal that it may dip into the negative territory in May.

The key question is whether Bank of England will decide to set the interest rate below zero. The next decision is due on June 18, 2020, and the Bank of England has one month to assess the economic data.

Yesterday’s stock market trading session in the U.S. finished with a sell-off after the release of the report which questioned Moderna’s coronavirus vaccine trial.

If worries about the vaccine persist, the U.S. dollar may get additional support as it continues to serve as the safe haven asset of last resort. Such scenario will be bearish for GBP/USD.

Technical Analysis

GBP/USD is trading near the key resistance level at 1.2250. The previous technical picture was bearish, but if GBP/USD manages to settle above 1.2250, it will signal a fake breakout and may return to the previous trading range between 1.2250 and 1.2650.

The next resistance for GBP/USD is at the 20 EMA level near 1.2300. Potentially, the whole area between 1.2250 and 1.2300 will serve as a major resistance for the pair.

If GBP/USD gets above the 20 EMA, it will likely gain significant upside momentum and head towards the 50 EMA level at 1.2380.

On the support side, the nearest support for GBP/USD is located at the lows of the first pullback following the rebound from mid-March lows, at 1.2170. In case GBP/USD gets below this level, it will likely gain additional downside momentum and head towards recent lows at 1.2080.