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The British Pound is looking better supported against the Dollar.
Having reached 1.3750 at the start of July, the Pound to Dollar exchange rate (GBP/USD) has since shed weight and fallen back to a low at 1.3364, which was rached last Wednesday.
It has since recovered back towards the 1.34's, corroborating our previous Week Ahead Forecast that a some relief was likely possible.
The annotations seen on the below chart were made in last Monday's Week Ahead Forecast, showing that a relief rally was expected ahead of another test lower.
Above: GBP/USD at daily intervals with Week Ahead Forecast annotations.
The sentiment was broadly correct, and that is why we will keep the annotations for this week's edition.
The key takeaways are that the RSI in the lower panel has turned higher again, which signals the July selloff has lost critical momentum and a more consolidative phase can therefore be expected.
Further GBP/USD strength is possible, but we're in a period in which it will likely be sold into and ultimately be faded by traders.
Support is seen at 1.3364, which is last week's low, but represents a line in the sand for previous periods of weakness and strength stretching back to April (it's both a support and resistance line).
The GBP/USD selloff might wane from here as markets look to have completed a repricing in expectations for further Bank fo England rate cuts, owing to the slowdown in the domestic economy.
This repricing reached a higher water market last week, when investors saw as many as three more cuts being delivered over the remainder of the year. However, a hot inflation print and above-consensus wage data suggest three more cuts would be a stretch, as it is clear the Bank would risk stimulating inflation if it goes too fast.
Increasing bets for cuts have been a contributor to recent GBP/USD weakness, and the completion of that repricing will help the Pound.
The markets are primed for two more cuts, which looks to be adequate given anything more would risk boosting domestic inflation, something the Bank of England will wish to avoid.
There will be some FX market focus on the release of the UK Composite PMI, due for release on Thursday, which should give a snapshot into economic activity this July.
It rose for a second month running in June, moving from 50.3 in May to 52.0, to reach its highest since last September. It signals an acceleration in UK private sector activity at the end of the second quarter, which if repeated could further underpin the Pound near these levels.
The U.S. economic calendar is relatively sparse this week, which means markets will be focused on trade headlines as a number of countries race to meet the U.S. deadline of August 01, by which time President Donald Trump wants the trade issue to be wrapped up.
The EU and Japan need to secure deals, although the market isn't showing much concern about the impending deadlines of late.
Indeed, the Dollar appears to be losing its sensitivity to trade headlines, meaning we might not get much more GBP/USD strength out of this narrative.