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Abstract: According to data released by the Bank of England today, the increase in borrowing by UK consumers in July was lower than expected, which may be a sign that rising borrowing costs have led to family caution.

Fundamentals

The latest monthly survey report of the British Retail Consortium (BRC) shows that retail prices in the UK slowed down in July, which is good news for families. The data dropped by 70 basis points from the previous month to 6.9%, the lowest since October 2022, which means that the living standards of British people are improving. Coupled with the reduction of energy bills and the wage increase ahead of the inflation rate, this will further benefit families. At the same time, the UK benchmark interest rate will peak at around 5.25%-5.75%, which will be a welcome phased goal.

In terms of consumer credit, it increased by GBP1.191 billion, which was lower than the market expectation of GBP1.3 billion and also lower than GBP1.637 billion in June. In the 12 months to July, the growth rate of consumer credit slowed down to 7.3%, the slowest growth rate since last December. The number of mortgage loans granted by the central bank decreased by more than 5,000 from last month to 49,444, and the data further showed signs of a slowdown in the property market.

Overall, factory activities and the real estate industry in the UK have become the main victims in the struggle against persistent inflation. Due to the poor demand prospects, the UK companies continue to operate at a lower capacity, and the rise in mortgage interest rates has forced buyers to postpone their purchases.

So far this year, the UK economy has avoided the widely predicted recession, but last week, concerns about the economic slowdown intensified. Although energy and fuel prices are weak, inflation will not subside as quickly as it appeared. In August, the comprehensive PMI fell to the lowest level since January 2021.

Technical Analysis

The GBPUSD has been in a long-term uptrend since October 2022 and surged to a new 15-month high of 1.3142 on July 14. However, the GBPUSD has since experienced a prolonged correction, with prices falling to a new two-month low. Currently, prices are gradually recovering some of the lost ground after hitting the low 1.2548 level on Friday. With the bulls testing the threshold of 1.2700, the rebound seems to be in line with our previous expectations.

However, the short-term oscillator shows that the short-term risk tends to be downward. Specifically, the short-term relative strength index turns positive, but it is still in the negative zone in a larger period, while the MACD is below the 0-axis. This also means that the short-term strong rise may be just a flash in the pan. After the bulls complete the test of supply zone 1.2700, it may pull back again.

The June bottom at 1.2592 and the recent bottom at 1.2547 will act as immediate support if shorts try to continue to depress prices. Failure to stop here could see the GBPUSD retrace further to the December-January resistance zone at 1.2445, which could become support in the future.

On the other hand, if the GBPUSD manages to halt the retracement at the June bottom at 1.2592 and recover strongly, bulls could test the recently out-of-reach resistance at 1.2799. A break above this zone could see bulls make further progress toward the June highs at 1.2847 before the psychological barrier of 1.3000 emerges.

Overall, the GBPUSD retracement seems to be starting to lose momentum, but it is too early to expect a reversal. Because the GBPUSD had previously hit new lows, the short-term rebound will not take long to accelerate; the price can go higher while waiting for a retracement and without breaking the previous low. It is recommended to go short at the highs.

Trading Recommendations

Trading direction: Long

Entry price: 1.2635

Target price: 1.2945

Stop loss: 1.2480

Deadline: 2023-09-13 23:55:00

Support: 1.2654, 1.2613, 1.2549

Resistance: 1.2732, 1.2802, 1.2830