GBP/USD eyes UK retail sales release

FX:GBPUSD   British Pound / U.S. Dollar
115 0 3
Price action yesterday

Cable made multiple failed attempts to take out inverted head and shoulder neckline seen yesterday at 1.4402. The second attempt was widely expected to result in an upside break since the pair bounced off from around key support level of 1.4350 after dismal UK labor and wage growth data release. However, dollar demand was strong in the NY session, thus resulting in a drop below 1.4350 and a day end closing of 1.4330, which is 23.6% Fibo of 1.5930-1.3835.

UK retail sales may surprise on the downside

Consumer spending as represented by retail sales figure is due for release today. Consumer spending has been the main driver of economic growth in the UK in recent months. However, the data due today is likely to show another month-on-month contraction in the retail sales, thereby adding evidence to the slowdown in the UK economy.

A drop in the retail sales could be more than expected if British Retail Consortium ( BRC             ) figure released on April 11 are to be believed. BRC’s like-for-like sales gauge fell 0.7% in March on a year earlier, the biggest drop since last August. The latest figure did carry a distortion due to early Easter; however, the overall trend was weak. BRC             had described March figure as “relatively disappointing” and said “retailers were also feeling longer-standing pressures”.

Hence, odds of a weaker-than-expected release are high, in which case we can expect Cable to test its 5-DMA seen around 1.4308 levels. Another point worth noting is Cable ignored BRC             figure release on April 11 and posted sharp gains. Thus, a weaker retail sales release could see exaggerated drop towards 1.4252 levels.

On the other hand, a positive surprise would help Cable make another attempt to take out inverse head and shoulder neckline seen today around 1.4395 levels.

Technicals – Bull grip weakening due to repeated failure at Inv             . H&S neckline

  • Cable’s multiple failure to take out inverse head and shoulder neckline in past two trading days coupled with a daily closing below 1.4350 and back inside falling channel seen on the daily chart indicates support at 1.4308-1.43 could be put to test, breach of which could yield 1.4252 (50% of 1.4669-1.3835).
  • On the higher side, 1.4395 ( Inv             . H&S neckline today) stands as a strong resistance, this needs to be breached, preferably on daily closing basis, if pair has to witness sustained rally.

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