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In the course of active trading yesterday, the pound sterling lost almost 100 pips intraday. As soon as the price dipped below 1.1800, it made a minor bounce. Interestingly, the market neglected all macroeconomic data. At the same time, the US producer price index came in much worse thanexpected. The previous reading for May was upgraded from 10.8% to 10.9%. The annual PPI rate accelerated to 11.3% in June, faster than the expected 10.9%. However, by the time of releasing the data, the pound sterling had already completed its decline. The sterling rebounded a few hours later after the publication of the PPI data.
US Producer Price Index, y/y
Market participants are well aware that the US dollar is extremely overbought so the market needs an urgent correction. Nevertheless, all attempts of an upward correction have been in vain. Perhaps traders will find an excuse for the correction in light of the US retail sales data. Retail sales are expected to slow down growth to 6.5% from 8.1%. A considerable decline in consumer activity alongside rampant inflation warns of a looming recession. Indeed, consumer activity is viewed as the cornerstone of economic growth in the US. Moreover, economists predict a severe and protracted recession. Of course, a recession threatens not only the US economy but the global one. The thing is that the US currency is strongly overbought, hence, the market isdesperate for a correction.
US Retail Sales, y/y
Meanwhile, GBP/USD updated a local low of the medium-term downtrend amid the selling interest. Comparing price fluctuations in the currency market, we have found out that the pound sterling has been following the euro's trajectory.
The H4 and D1 RSIs are moving in the lower area of 30/50. It indicates high interest in the downward move. The H1 RSI has rebounded to the line of 50 during the retracement stage.
Moving averages on the H4 and D1 Alligators are directed downward which corresponds to the overall downtrend.
Outlook and trading tips
A further decline would enable the currency pair to approach the local low of 2020 within the overall downtrend. At the moment, the clear-cut correlation between GBP and EUR constricts the sterling in its moves. For this reason, market cycles might fail to follow their regular patterns. In case the euro manages to develop a full-fledged upward correction, the pound sterling will also enter the stage of its advance.
Complex indicator analysis provides a buy signal for the short term on the back of a GBP retracement. Besides, technical instruments suggest selling intraday and in the medium term because GBP/USD is hovering at about the parity level.
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