The GBP/USD pair is trading on the momentum of Friday's session, against the backdrop of an empty economic calendar for Monday. Over the last two weeks, essentially throughout August, there's been a sluggish standoff between the sellers and buyers of GBP/USD. Bulls are trying to consolidate above the target of 1.2730 (the Tenkan-sen line on the D1 timeframe), while bears are trying to break through the support level of 1.2660 (the upper boundary of the Kumo cloud on the same timeframe). However, the pair eventually drifts around the 26 and 27 figures, effectively showing a sideways movement.
Increased volatility is expected for the pair this week as key macroeconomic reports in the UK labor market, inflation, and retail trade sectors will be released. Amidst price turbulence, the pair could either move down to the base of the 26 figure (i.e., the lower line of the Bollinger Bands on the daily chart) or rise to the 1.2800 mark (the upper line of the Bollinger Bands on D1). A kind of "marathon" will begin tomorrow when we learn July's labor market data for the UK.
According to preliminary forecasts, unemployment in July will remain at June's level, which stands at 4.0%. Since September of the previous year, there's been a gradual upward trend from the reached low of 3.5%. The indicator showing the increase in unemployment benefit claims is expected to display a downward trend. Forecasts suggest that the number of claims will decrease by 30,000, after a 25,000 increase in June. Another equally important component of the report, the average earnings level, is also expected to favor the British currency. Including bonuses, the indicator is projected to stand at 7.3%, marking the strongest growth rate since September 2021. This indicator has been gaining momentum for the fourth consecutive month. Excluding bonuses, wages are also expected to grow significantly by 7.4%. An upward trend in this pro-inflation indicator might support the British currency, as wage growth often threatens further inflation pressures.
Nevertheless, GBP/USD traders shouldn't rush to conclusions about inflationary growth dynamics based solely on wage data. Key inflation indicators for July will be released literally the next day—on Wednesday, August 16. Preliminary forecasts suggest that the data will show a slowdown in inflation in the UK. If the actual figures match the forecasts (let alone if they're in the "red zone"), the pound could face significant pressure.
The general consumer price index for July, on a monthly basis, is expected to drop to -0.1%. This report component might dip into the negative territory for the first time since January of this year. On an annual basis, the overall CPI is also expected to show a downward trend, decreasing to 6.8%—marking the weakest growth rate of the indicator since March 2022.
Particular attention should be given to the dynamics of the core consumer price index. According to most experts, core inflation will rise in July by 6.8%. From January to May of this year, the main CPI steadily gained momentum, reaching a peak at 7.1%. In June, it stood at 6.9%, and in July it is expected to be at 6.8%.
Other inflation indicators should also reflect a slowdown in inflationary processes in the UK. In particular, the retail price index on a monthly basis is expected to come out at -0.7%, falling into the negative territory for the first time in two years. On an annual basis, the index should come out at 9.1%, the weakest growth rate since March 2022. This component of the report decreased for four consecutive months, and July, accordingly, will be the fifth month if the figure comes out at the forecasted level (or below).
The producer purchase price index on an annual basis in June fell into the negative zone (for the first time since December 2020), reaching a mark of -2.7%. And according to forecasts, in July, it will continue to decline—the majority of analysts believe the figure will decrease to -5.1%.
And on Friday, August 18th, key data on retail trade growth in the UK will be published. This release can also provoke increased volatility for the pair, especially if it resonates with previous reports. The volume of retail sales, including fuel costs, in July is expected to decrease by 2.1% year-on-year. Excluding fuel costs – by 2.2%.
Thus, if we go by the forecasts of most experts, the upcoming macroeconomic releases will not be in favor of the British currency. If the figures come out in the "red zone," the pressure on the pound will, accordingly, intensify further. However, if inflation indicators unexpectedly accelerate (primarily the core consumer price index), the pound will have hope. However, in my opinion, such a scenario seems unlikely, given the dynamics of indirect inflation indicators.
From a technical standpoint, the Ichimoku indicator on the daily chart has formed a "Death Cross" signal, where the Tenkan-sen and Kijun-sen lines on the daily chart are above the price, and the Kumo cloud is below it. This configuration indicates a priority for short positions. It should be noted that at the moment, sellers of the pair could not overcome the support level of 1.2660 (the upper border of the Kumo cloud on D1). Selling is advisable only after the bears of GBP/USD settle below this target. In such a case, the next target of the downward movement in the medium term will be the mark of 1.2570—the lower border of the Kumo cloud on the same timeframe.
