Pound soars to new 7-month high despite weak data as charts show downside risks

UK's pound has rallied to a new seven-month high despite weak economic numbers on the continued impact of the Bank of England minutes on 17 June that had shown two policymakers saw risks of increasing and holding rates balanced.

Charts suggest the pound has just hit crucial resistance barriers and therefore, immediate risks are on the downside.

The current level is a channel resistance taking the upward trend dating back to mid-April and also endorsed by the 50-period moving average on the monthly chart.

Dovish surprise in the Fed statement in the previous day too continued to help sterling as the greenback generally remained weak.

GBP/USD traded at a high of 1.5930, its highest since mid-November in 2014, from the previous close of 1.5833. The pair had posted a 1.2% rally on 17 June.

The BoE quarterly bulletin said the range of measures of inflation expectations used by the MPC are still consistent with inflation expectations remaining anchored to the target.

The market is now waiting to see what is being decided over Greece by its international creditors as a Eurogroup meeting is on.

Data from UK on 18 June revealed retail sales increased 0.2% month-on-month in May, slower than the 0.9% growth in April. The April number was a downward revision from 1.2%.

Also, the year-on-year rate came in at 4.6% compared with market expectations of 4.8%, while the April rate was revised down to 4.6% from 4.7%.

Technically, GBP/USD has just hit a channel resistance, increasing the likelihood of some downward correction. Even a fundamental positive looks unlikely to push the pair through the 1.60 mark in the coming days given the technical room southward.

On the downside, first levels to watch are 1.5675 and 1.5554 ahead of 1.5375 and 1.5170. Only a break of 1.5375 will significantly pose risks of a retest of April's multi-year lows.

That said, upside chances will remain as long as 1.5200 holds and 1.5000 remains the most important support where the 50-day SMA has taken an upward twist.