GBP/USD surges 1% higher while UK consumers remain pessimistic about their finances

GBP/USD surges 1% higher while UK consumers remain pessimistic about their finances
  • The UK consumers remain pessimistic about the state of their finances in June
  • Job security perceptions have also rebounded in June but still well below pre-coronavirus levels
  • Sterling has rebounded around 1% as the buyers are closing in on the critical short-term level of $1.25

GBP/USD has surged around 1% today as the buyers force price action to come back to the “crime scene”. Today’s close will also form a bullish engulfing candlestick pattern, which represents one of the most clear-cut price action signals in the currency market.

Fundamental analysis: Consumers remain pessimistic 

According to the latest market data from Markit, the UK consumers remain pessimistic about the state of their finances in June. The UK household finance index surged to 40.7 in June from 37.8 in May, but still below the pre-virus levels around 45.0.

“It is reassuring to see the UK Household Finance Index rebounding in June, as it suggests that the financial hardship endured during the height of the lockdown is easing. However, it appears that households are still faced with a number of difficulties which will hold back a broad-based economic recovery,” it is stated in the Markit’s report. 

The job security perceptions have also rebounded in June to 36.0+ levels, but still well below levels around the 48 mark recorded at the start of the year. 

“UK households maintained a strongly pessimistic view towards job security in June. While the outlook was slightly less downbeat than in May, it remained deeply negative overall”.

Technical analysis: The pound rebounds

The sterling has surged 1% today as the buyers close in on the key bull/bear line around the $1.25 handle. This level represents a critical short-term indicator for the price action. A failed attempt to get back higher will likely end up in a bigger move lower, with $1.2270 the first target lower.

GBP/USD daily chart

“It looks like the market is looking for some mild retracement today after the run over the past few days. As such, the levels above will be key to watch in terms of how much the nudge higher will amount to and a gauge of buyers’ conviction,” FX analyst Justin Low said. 

Today’s huge move to the upside has also created a bullish engulfing candlestick pattern. This chart formation consists of two candles where the second one completely overwhelms the first one to shift the momentum in the buyers’ favour. To learn more about bullish reversal patterns, click here.

Summary

GBP/USD has gained around 1% today to record one of the best days in the last few weeks. The price action is now approaching the critical level of $1.25 as the latest data from Markit shows that customers remain downbeat about the state of their finances in June.

By Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to Invezz. His passion has given him first hand experience of trading, while his writing means he understands the market forces and wider regulation.
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