GBP/USD rejected near 1.4000, drops to test key 1.3960 support

• Bulls run into the 1.4000 resistance on China retaliation fears
• Will the US retail sales and PPI data rescue the greenback?

The GBP/USD pair is seen reversing a part of the intraday gains in early Europe, as the bulls faced resistance once again just shy of the 1.40 mark, sending the rates back towards the key 50-DMA support located near 1.3960.

However, the sentiment still remains underpinned by a broadly weaker US dollar, as the US political uncertainty and sluggish US inflation data continue to weigh. Trump fired the US Trade Secretary Tillerson late-Tuesday following a series of public rifts over policy on North Korea, Russia, and Iran.

Also, the UK’s optimistic budget report, in which the Kingdom’s 2018 GDP growth forecast was revised up to 1.5%, keeps the buoyant tone intact around Cable. UK’s Hammond: to set the overall path for public spending beyond ’20.

Looking ahead, it remains to be seen if the risk currency GBP can sustain the bullish momentum, as risk-off trades may remain in play amid the renewed US tariffs threat on the Chinese imports.  

Haresh Menghani, Analyst at FXStreet notes, “in absence of any major market moving economic releases from the UK, the USD price dynamics should continue to act as an exclusive driver of the pair's momentum through the European session. Later in the day, the US monthly retail sales data, along with the latest PPI figures would influence sentiment surrounding the already struggling USD and provide some fresh impetus.”

GBP/USD levels to watch

Haresh adds: “Tuesday's strong up-move marked a bullish break above a short-term descending trend-line resistance and hence, the pair remains poised to extend the momentum towards the 1.4030-40 resistance, representing 23.6% Fibonacci retracement level of the 1.3039-1.4345 upsurge. On the flip side, 1.3960 level now seems to protect the immediate downside, which if broken might prompt some additional long-unwinding trade. However, any subsequent weakness is likely to find some fresh buying interest around the descending trend-line resistance break area, now turned strong support, near the 1.3900 handle.”