Forex Market: GBP/USD hits fresh two-week highs on weaker Dollar, UK retail sector reopening plans

GBP/USD extended gains and touched a fresh two-week high during the late phase of the European session, as the US Dollar lost ground amid rising investor optimism regarding economic recovery and after UK Prime Minister Boris Johnson announced plans of a wide-scale reopening of department stores and shopping centres in June.

During a Monday news conference, Boris Johnson said that car showrooms and outdoor markets could resume operations from June 1st, while all other non-essential retail could reopen from June 15th, in case the government’s tests were met.

Last Friday the Office for National Statistics reported that UK retail sales had plunged 18.1% in April from March, or at the steepest monthly rate on record.

“GBP is enjoying a brief reprieve after a tough couple of weeks, potentially buoyed by the news that the UK retail sector will open up in mid-June,” ING strategists wrote in an investor note.

Still, Sterling may face risks stemming from negative interest rate prospects, Brexit-related negotiations as well as the high coronavirus pandemic death toll in the country.

As of 11:30 GMT on Tuesday GBP/USD was gaining 1.00% to trade at 1.2312, after touching an intraday high of 1.2326, or a level not seen since May 13th (1.2340).

In terms of economic calendar, today’s focus will be on US consumer confidence and new home sales reports. Confidence among US consumers probably improved in May, with the corresponding index coming in at 88.0, according to market expectations. In April, the gauge was reported at 86.9, or the lowest level since June 2014. The Conference Board research group will release the official data at 14:00 GMT.

Also at 14:00 GMT the US Census Bureau will report on new home sales in April. The median analyst estimate points to a 25.8% drop in sales of new single-family homes to 0.495 million. In March, new home sales were reported at a seasonally adjusted annual level of 0.627 million, or the lowest since May 2019.

At 17:00 GMT Fed President for Minneapolis Neel Kashkari is expected to speak on ways to begin reopening the economy safely in a virtual discussion hosted by NBC’s Tom Brokaw at the University of Minnesota conference on “Living in a Covid-19 World: A discussion with leading health and economic experts”.

Bond Yield Spread

The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, equaled 23.0 basis points (0.230%) as of 10:15 GMT on Tuesday. It has been the highest spread since May 21st.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.2186
R1 – 1.2208
R2 – 1.2226
R3 – 1.2248
R4 – 1.2269

S1 – 1.2168
S2 – 1.2146
S3 – 1.2128
S4 – 1.2111

The H1 chart shows that the major pair has appreciated too much too fast, thus, a temporary return to the 20-period EMA may be expected. However, the larger time frame shows GBP/USD is set to extend the rally. If so, a break above May 13th high of 1.2340 may expose the high from May 12th (1.2378). The pair now approaches the middle section of the wide trading range, marked by May 18th low of 1.2076 and April 14th high of 1.2648.