Has the 11-week rally in GBP/USD ended?

GBP/USD was the top loser in Asia as the FX desks offered GBP across the board in response to weak UK Q1 GDP print and growing signs of UK PM May’s Conservative party losing ground ahead of the June 8 elections.

The demand for the US dollar spiked as well as the CME FedWatch June rate hike probability jumped to 87.7%.

Despite the retreat to 1.2870 in Asia, the broader uptrend is still intact, given the pair is trading above 1.2810 (support offered by the trend line sloping upwards from the March low and April low). The 11-week could come to an end if the US data due later today beats estimates.

US GDP to be revised higher

The market expects an upward revision of the US Q1 GDP to 0.9% y/y from 0.7%. The core personal consumption expenditure is seen rising 2%. An upward revision of the GDP and/or core PCE could strengthen the bid tone around the US dollar.

However, a break below the key rising trend line support of 1.2810 on the GBP/USD would require a strong durable goods print. Moreover, a rise in the durable goods orders number would signal that the business investment is on the recovery mode after a prolonged slump. That would also add credence to the Fed’s view that the Q1 slowdown was transitory.

The June rate hike bets currently stand at 87.7% and could jump well above 90% of the strong US data releases. Watch out for a break below 1.2810 as that would mark an end to 11-week rally in the GBP/USD pair.

GBP/USD Technicals

Repeated failure to hold above 1.30 seen over the last few days followed by a decline to 1.2870 in Asia suggests a short-term top is in place at 1.3048 (May 18 high). The daily RSI has almost turned bearish below 50.00 levels, while the MACD shows the bearish move is gathering steam.

An Intraday break below 1.2871 (100% Fib Extension of Mar low-Mar high-Apr low) would expose 1.2810 (rising trend line support). Only a daily close below 1.2810 would signal a trend reversal and could yield sell-off to 1.2726 (50-DMA).

On the higher side, stiff resistance is seen at 1.2952 (5-DMA + 10-DMA), which, if breached, would open doors for 1.3009 (127.2% Fib Extension) and 1.3048 (May 18 high).