FX.co ★ GBP/USD. 1.2850 - a challenging price threshold for the British currency

Last Friday, the GBP/USD pair tested the 1.2850 support level, which corresponds to the upper line of the Bollinger Bands indicator on the daily chart. From a formal point of view, the pound has renewed its multi-month price peak (the last time the pair was at this level was in April), but in reality, the situation doesn't look so rosy for buyers. Over the past three weeks, the pound has repeatedly approached the 1.2850 target, but each time it has also fallen short of reaching this price barrier. Take a look at the weekly and daily GBP/USD charts: since mid-June, the pair has shown wave-like dynamics, as it repeatedly tries to overcome the stubborn resistance level. By the way, the last attempt also ended in failure. At the start of the new trading week, sellers took the initiative again, pulling the price into the 27th figure range.

A news catalyst is needed

The pound needs a strong news catalyst to break through the defense (1.2850), approach the boundaries of the 29th figure, and in the future claim the heights of the 30th price level. Undoubtedly, such a scenario is possible in the event of a broad US dollar weakness, but as practice shows, even in this case, the pound shouldn't play the role of a follower, but that of a leader.

As mentioned above, the GBP/USD pair has been in a prolonged uptrend since mid-June. Initially, support for the pound came from data on rising inflation in the UK. It turned out that the core consumer price index, excluding food and energy prices, jumped to 7.1% in May, while most analysts predicted it would fall to 6.7%. The indicator renewed a multi-year record - this is the strongest pace of growth of the indicator since 1992. Within the current year, the indicator demonstrates an uptrend for the second month in a row.

This fact strengthened the pound's position, but its main "ally" turned out to be the Bank of England, which unexpectedly raised the interest rate by 50 basis points a few days after the release (the base forecast assumed a 25-point hike). Moreover, in its accompanying statement, the central bank did not soften its wording and hinted at further tightening of monetary policy. The central bank, in particular, indicated that it will continue to "carefully monitor signs of inflationary pressure in the economy, including the labor market situation and wage dynamics, as well as inflation in the services sector." At the same time, the Bank warned that if inflationary pressures persist, interest rates may stay high for longer than expected.

The events of the past month allowed buyers to cover almost a 500-point path: at the beginning of June, the price fluctuated at the base of the 24th figure, while on the wave of the upward momentum it grew to the middle of the 28th figure. But the 1.2850 target became a local price ceiling for the bulls. In order to build an upward move, you need to experience a kind of deja vu: further inflation growth (this time in June) + hawkish results of the next BoE meeting. However, in order to successfully move to the 1.2850-1.3000 price threshold, it is enough to fulfill only the first point of the "plan" (provided that the dollar index remains in its previous positions and does not strengthen after the release of US inflation data).

Important reports ahead

The consumer price index in the UK for June will be published next week - July 19th. This will be key in the run-up to the August BoE meeting. But in addition to the inflation report, we should also pay attention to another report - in the field of the UK labor market. It will be published on Tuesday. If the main components turn out to be in the green (especially the pro-inflation indicator), the pound will receive a kind of "advance help", which will be greatly enhanced in case of a strong inflation report. In other words, if both reports (labor market + inflation) are in the green, the probability of a rate hike in August will significantly increase, and this will support the British currency.

According to preliminary forecasts, the unemployment rate will remain at the same level (3.8%), the number of employed will increase by 20,000 (after falling by 13,000 in the previous month), and the wage component will show contradictory dynamics: with the payment of bonuses, the indicator will rise to 6.8%, without bonuses - it will decrease slightly, to 7.1%.

Overall, if you trust the forecasts, Tuesday's reports can support the British currency. If the indicators turn out to be in the green (especially the wage component of the report), buyers may again test the resistance level of 1.2850, which turned out to be a "tough nut to crack". But even in this case, the pound is unlikely to settle above this target and settle within the 29th figure. In my opinion, such a scenario is possible in the event of an acceleration in the growth rate of the UK CPI and/or a large-scale weakening of the US currency.

From a technical point of view, on the daily chart, the price is between the middle and upper lines of the Bollinger Bands, which speaks of the bullish bias. On the daily and weekly charts, the Ichimoku indicator formed a bullish "Parade of Lines" signal, when the price is above all lines of the indicator, including above the Kumo cloud. This signal also indicates bullish sentiments. The nearest target is the aforementioned mark of 1.2850 (the upper line of the Bollinger Bands on D1). The next level of resistance (and, accordingly, the next target) is the 1.2950 mark - this is also the upper line of the Bollinger Bands indicator, but already on the weekly chart.