The GBPUSD is developing a new major downtrend, which is emerging from the previous Distribution range. Our last analysis of the pair examined in details the current opportunities for contrarian trading in relation to the Wyckoff Cycle Theory.
The struggles for the GBPUSD were exacerbated earlier today after the Office for National Statistics in the UK published much weaker than initially forecasted retail sales for May. This bolstered the mounting bearish sentiment on the pair.
As can be seen on the 4H chart above, the transition from the preceding Distribution range, as postulated by the Wyckoff Cycle Theory, into a new Markdown was initiated this week. The catalysis was FED's June meeting and FOMC's decision to adopt a slightly more hawkish policy stance.
After the decision was announced, the price action was able to break down below the psychologically significant support level at 1.40000. But even before that, the price action was exhibiting definite bearish signs.
These included the formation of a Spring above the upper boundary of the Distribution, the initial breakdown and the subsequent throwback to its lower boundary.
Notice that the Markdown is taking the form of a classic 1-5 impulse wave pattern, as postulated by the Elliott Wave Theory. The second impulse leg (2-3) appears to be bottoming out near the 61.8 per cent Fibonacci retracement level at 1.38924.
The price action is then likely to establish another bullish pullback, representing the second retracement leg (3-4). Bears would then have the opportunity to utilise contrarian trading strategies at the resulting swing peak.
The pound's selling pressure is the result of several external factors happening simultaneously.
Today it was revealed that retail sales had plunged 1.4 per cent in May from the massive 9.2 per cent expansion a month prior. The consensus forecasts were instead anticipating the index to grow by 1.5 per cent.
This monthly performance of the British economy underpins a global trend of weakening retail performance, representing some persisting struggles for the global recovery effort.
Meanwhile, steadily climbing Covid-19 cases are exerting extra pressure on the pound as Britain's economic activity is once again threatened by the risk of renewed government restrictions.