Despite the Bank of England’s decision to raise the base rate by 0.50% instead of the expected 0.25%, the British pound closed the day down by 22 pips. The unexpected decision sparked UK recession concerns.
With inflation remaining at 8.7% YoY and the rate increased to 5.00%, the economy is experiencing a situation of economic contraction and reduced consumer demand (and inflationary pressure!). The UK finds itself in this trap for the second time, with the first time being during the global crisis of 2008/2009, when the rate was also raised to 5.00% and inflation was at 5.0% YoY.
Today, retail sales data for May in the UK will be released, with a forecast of -0.2%. The forecast for core retail sales is -0.3%. The decline in retail sales to -3.0% YoY currently corresponds to the contraction seen during the 2008 crisis, and the March figure of -3.9% is even worse than those years.
So, the price failed to extend yesterday’s rally, and the breakthrough above the resistance at 1.2785 turned out to be false for the third consecutive session. Now, the price is declining towards the nearest support at 1.2678. Breaking this level will open up the next target at 1.2600.
On the 4-hour chart, the price has consolidated below the balance and MACD indicator lines, and the Marlin oscillator is in negative territory. The short-term trend is bearish. To confirm a medium-term decline, the price needs to consolidate below the MACD line on the daily chart (1.2510).
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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