GBP/USD - Will bond yield spread save the day for GBP bulls?

The GBP/USD pair rose to an Intraday high of 1.2909 on Thursday before deflating to 1.2866. The UK July retail sales beat estimates, although the annualised growth was weak. The US-UK 10-year bond yield spread narrowed further to 110 basis points. 

Daily chart

• The trend line sloping higher from March 14 low and June 21 low has been acting as a strong support for the last three trading sessions.
• The narrowing of the yield spread in favor of the British Pound from 118 basis points to 110 basis points appears to have saved the day for the bulls.

US-UK 10-yr yield spread chart

The confluence of the head and shoulders neckline and the trend line sloping higher from Q, 2016 low is seen around 100 basis points.

The spot could see a strong rebound from the rising trend line support if the yield spread breaks below 100 basis points. On the other hand, a spike in the yield spread would strengthen the dollar’s appeal and may yield a big sell-off in the GBP/USD pair.

The data calendar is empty today, hence the yield spread may not move much. Thus, the spot may remain sidelined around the rising trend line support.

GBP/USD Technical Levels

Cable clocked a high of 1.2889. A break above 1.2895 [5-DMA] would open up upside towards 1.2933 [50-DMA] and 1.2949 [10-DMA]. On the downside, breach of support at 1.2863 [rising trend line support] could yield a sell-off to 1.2812 [July 12 low] and 1.2778 [38.2% Fib R of 1.1986-1.3268].