{x} | Trading.live

Summary: On Thursday, the GBPUSD extended its gains to a 15-month high of 1.3142 after the release of the latest round of data. However, due to an extremely overbought market structure, the risk of further upside is rapidly increasing.

Fundamentals

From a fundamental perspective, the GBPUSD is in the later stage of trading during two relatively busy periods in the market.

On Thursday, the UK's month-on-month GDP for May came in at -0.1%, surpassing the expected -0.3%. Industrial production for this month fell short of the anticipated -0.4% at -0.6%, while manufacturing production exceeded the expected -0.5% (month-on-month) and -1.7% (year-on-year) at -0.2% and -1.2%, respectively.

Earlier this week, the UK's three-month unemployment rate until May, according to the International Labour Organization, rose from the previous update of 3.8% to 4%, lower than the expected 3.8%.

In the U.S., initial jobless claims for the week ending July 6 reached 237,000, surpassing the expected 250,000. This indicates that the deterioration of the labor market is progressing at a very slow pace. However, it presents a rather encouraging backdrop for risk assets.

The Producer Price Index (PPI) for June showed a month-on-month and year-on-year decrease lower than expected at 0.2% and 0.4%, with changes of 0.1% and 0.1% respectively. The PPI data indicates further progress in fighting inflation as prices of intermediate-demand goods declined by over 9% on a yearly basis. This seems to be "good news" for the Fed (and the bulls) but may also be a signal of an economic downturn.

Technical Analysis

The GBPUSD has shown strong upward momentum this week, as there is insufficient evidence to suggest that UK inflation will cool down. In order to bring the inflation rate back to 2%, the Bank of England has raised interest rates to 5% and is considering further policy tightening or continued upward pressure on the asset.

From a technical perspective, the GBPUSD continues to trade within an ascending channel pattern in the 1-hour chart. This indicates that market sentiment remains clearly biased towards the short-term bullish side. Therefore, the bulls will seek to capitalize on the current rebound toward the high of 1.3193 or higher.

However, after the British pound reached a yearly high of 1.3142, the bulls have encountered some profit-taking. This is due to the completion of a testing phase of the demand zone between April 14, 2022, and September 26, 2022 (1.3089/1.0355).

Overall, with the weakness of the U.S. dollar reaching extremes this week, it is expected to continue next week, which bodes well for the GBPUSD. With strong resistance at the 100-month level, there is still room for further upside potential. However, in terms of risk-reward ratio, the option with the least risk path is on the downside. In terms of strategy, going short at highs is recommended to be the primary approach.

Trading Recommendations

Trading Direction: Short

Entry Price: 1.3100

Target Price: 1.2750

Stop Loss: 1.3310

Valid Until: 2023-07-28 23:55:00

Support: 1.3045, 1.2982, 1.2906

Resistance: 1.3203, 1.3234, 1.3295