GBP/USD Forecast: Eyeing trend line support ahead of US retail sales report

Sterling looked to re-enter the falling channel seen on the daily chart, but was rejected and fell to a low of 1.4293 levels. US dollar made a comeback across the board as significant majority believes the Fed may surprise markets with its hawkish stance. Consequently, offered tone around the pair remained intact in Asia, pushing it to a low of 1.4256 levels. Ahead of tomorrow’s FOMC rate decision, the spot could be influenced by US advance retail sales report.

Eyes US retail sales report

The January retail sales report was positive on all fronts. The headline figure had rose at the fastest pace eight months as incomes continue to post gains. Personal spending rose 0.5% in January. February non-farm payrolls report indicated labor market strength remains intact, while wage growth slowed. Overall, economy is holding up well in early 2016 despite global headwinds.

The financial markets are on a strong footing as well. This triggered speculation the Fed may come out less dovish than expected in March. The American dollar may receive another boost if the February retail sales figure due later today shows another solid uptick in consumption. Moreover, that would add to speculation of less dovish Fed.

The headline figure is seen falling 0.1%, while core/control group figure growth is seen slowing to 0.2% from Jan’s 0.6% rise. A better-than-expected data is what USD bulls would be looking out for.

Technicals – Daily close below 1.4228 would be bearish

Sterling’s failure to re-enter falling channel brought the bears back in the game, still scope for another bullish attempt exists as long as the spot does not see a daily close below 1.4228 (falling trend line support on the daily chart)
Bears need to watch out for a rebound from 1.4228, in which case the spot could test resistance at 1.4375 (falling channel). A violation there, preferably on daily closing basis, would mean recovery from 1.3835 has resumed and the spot may yield 1.4436-1.45 levels.
Intraday break below 1.4228 needs to be treated with caution, but such a break could materialize into a drop to 1.4134 (Mar 7 low).

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