GBP/USD: minor correction of steep supply in play as dollar unwinds

• A cliff edge Brexit is unfolding and the pound has been beaten up from all sides this week, including June inflation miss.
• The dollar has given back some ground in an unwind post-Powell and poor housing data, enables the pound to correct.  

GBP/USD had been sliding from 1.3117 the high to a low of 1.3009 but in recent trade in NY, having started out as the weakest currency, the pound has turned higher, en route towards the 21-hr SMA at 1.3078, currently trading at 1.3060 at the time of writing.  

GBP/USD was weighed in London trade by the UK inflation miss. (UK headline inflation was stalling at 2.4% y/y for June while core inflation decelerated to 1.9% y/y in June and at the lowest level since March of 2017 – pretty disturbing). The subdued inflation readings diminish the chances of a BoE rate hike as soon as August.  

Meanwhile, the dollar has given back some ground, with the DXY falling back towards the lows in recent trade with the day’s range of between 94.9580-95.4070.  Horrid US housing data,  (housing starts and building permits fall to nine-month low), made way for some profit taking while Powell’s testimony has done little to spur up the bulls, basically repeating much of the same optimism as yesterday’s delivery.  

A cliff edge Brexit unfolding

Meanwhile, the Breix saga continues, and the pound is licking its wounds after yesterday’s near miss for the government and PM May’s White Paper that forced key resignations from her cabinet. Earlier today, The Guardian  reported that “Europe’s officials lay into PM’s plan, with top diplomat saying it will not be basis of talks”.

Key quotes from the Guardian’s article:  

• “Led by Michel Barnier’s deputy, Sabine Weyand, the EU’s team of officials picked apart the most contentious parts of the paper as it was presented by Olly Robbins, Theresa May’s chief Brexit adviser, leading to increased concerns on both sides that a no-deal scenario is moving from possible to likely.”
• “EU diplomats and officials have looked askance at events unfolding in Westminster in recent weeks, and sources said the first EU-UK discussion of the white paper on Monday in Brussels was difficult, with the Brussels representatives voicing the oft-deployed accusation of “cherrypicking”.”
• “In turn, the UK negotiating team believe the commission’s negotiators are hiding behind the EU’s guidelines, which were published in March last year, stipulating that “the four freedoms of the single market [free movement of goods, capital, services, and labour]are indivisible and that there can be no ‘cherrypicking'”, meaning that Britain would have to accept the free movement of people.”
• “Both UK and Brussels sources suggested that an informal summit in Salzburg in September was now likely to be a crunch moment when EU leaders have a chance to take the lead and instruct Barnier to take a more flexible approach or send the UK back to the drawing board.”

GBP/USD levels

Analysts at Scotiabank explained that sterling has now given up around half of the 2016/2018 1.18/1.44 rally and argue  that the pound looks poised to correct a little more  in the near-term: “We spot retracement support now at 1.2810 (61.8% Fibonacci support) and feel a weekly close under 1.3078 (100-week MA) will signal pressure for additional losses. Resistance intraday stands at 1.3075/1.3100.”