The pound has been on a tear today, rising across the board. The GBP/JPY has led the advance, thanks to ongoing “risk-on” rally undermining the Japanese yen. The GBP/USD is also up sharply and is the pair to watch ahead of today’s publication of US August retail sales and the Federal Reserve rate decision next week.
Sentiment has turned positive towards the pound in recent days as investors price out the risks of the UK crashing out of the EU without a deal, after a bill became law that forces the government to seek an extension beyond October 31 deadline in order to avoid a no-deal Brexit. It remains to be seen however whether the pound will be able to reclaim further lost ground, given the current state of British politics and uncertain times over the coming months.
Regardless of the longer-term fundamental backdrop, short-term traders need to watch incoming data and price action closely here.
Today, US retail sales has the potential to move the dollar, which in turn could impact the GBP/USD exchange rate should we get a sizeable deviation from the expected readings. Headline retail sales are seen rising 0.2% month-over-month following a 0.7% jump the month before. Core sales are expected to come in at +0.1% after a +1.0% print in July.
Form a technical point of view, the current price structure on the cable is that of a reversal profile following that false breakdown attempt below the 1.20 handle earlier this month. Since then, the bears have been getting trapped as rates squeezed higher. But now we have arrived at an inflection point near the 1.25 handle.
At 1.2475, the GBP/USD was testing the low from last year, at the time of this wiring. Once support, this level has the potential to turn into major resistance. Slightly above the psychologically-important 1.25 handle we have the 38.2% Fibonacci retracement level against last year’s high. Given the convergence of these technical factors, there is a chance for a pullback of some sort here.
In terms of the next key support, the area between 1.2365 and 1.2385 was the most recent resistance range to keep an eye on. Now that we have broken above it, the bulls will need to defend this zone upon a potential re-test. However, in the event price breaks back below this zone, then this would flip the bias back to the bearish side. Specifically, a break below 1.2285 is required to completely invalidate the bullish bias.
Meanwhile, in the event that the GBP/USD eventually clears and holds above the 1.25 handle, then in that case we could see the rally extend towards the 50% retracement level at 1.2670 or even the 200-day moving average around the 1.2735 area.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.