GBP/USD Forecast: Next bearish break likely on weaker UK wage growth figures

The GBP/USD pair failed to to take out 1.4516-1.4519 (23.6% of 1.5930-1.4079 + 38.2% of 1.5230-1.4079) in early European session on Tuesday before fresh offers pushed the spot lower to 1.4351 (23.6% of 1.5230-1.4079) after the data in the UK showed the headline CPI fell more than expected in January and the core inflation growth slowed. Fresh offers came-in in the US session as the pair fell below 1.4351 and then extended losses to 1.4276 before ending the day at 1.4302 levels.

Eyes UK labor and wage growth data

The UK data due for release today is expected to show a further slowdown in the wage growth in three months to December. A weak wage growth figure would add credence to interest rate futures in the UK, that show a minor chance of a rate cut in the next six months or so. Hence, Sterling could head towards 1.4250-1.4218. A drop in the unemployment rate as expected may help restrict losses.

Later in the day, the Fed minutes are likely to show a rate hike is unlikely to happen in March. However, markets have already priced-in a status quo outcome of the March meeting; hence dovish FOMC minutes may not bring any relief to Sterling bulls.

Technicals – Flirting with trend line support on 4-hr chart

• Sterling’s bearish break below 1.4351 (23.6% of 1.5230-1.4079) on Tuesday if followed by a failure to rise back above 1.4304 (61.8% of 1.4079-1.4668) in early Europe today could lead to a bearish break from the rising trend line support (at 1.4290) on the 4-hr chart. Cable could drop to 1.4218 – 1.4175 levels in this case.

• Still, Sterling bears should watch out for a dip below the rising trend line followed by a quick recovery above the same (positive hourly candle) as that could be an indication of a short-term bullish move to 1.4351 – 1.4380 levels.

EUR/USD Analysis: Bulls could make a comeback

The EUR/USD pair failed to benefit from the wobbly action in the major European index futures on account of oil price volatility and thus ended on a weaker note at 1.1141, tracking the rise in the US stocks. The currency pair revisited 1.1120 levels in Asia before jumping to its hourly 50-MA located at 1.1163 levels.

Once again, the currency pair is at the mercy of the equity market sentiment. The Eurozone trade balance figures are unlikely to have any impact on the pair. Furthermore, the US Fed minutes could indicate what markets already know and have priced-in – Rate hike is unlikely to happen in March and the path of tightening would be more gradual that what Fed indicated in December. Hence, minutes could turn out to be a non-event for the markets.

Technicals – Eyes 23.6% Fibo resistance

• Euro’s failure to dip below the rising trend line support (drawn from March low to April low and extended) on Monday and Tuesday coupled with a rebound from the same in Asian session today indicates the currency could be heading higher to 1.12-1.1236 (38.2% of Mar low-Aug high).

• On the other hand, an intraday break below 1.1128 could open doors for a drop to 1.1088 (50% of Mar low-Aug high).

• However, only a daily close below the rising trend line support seen today at 1.1128 could provide room for the bears to take the pair down to 1.10 levels.