GBP/USD dropped to 1.4082 levels on Wednesday as heightened Brexit fears continued to scare investors out of Sterling positions. Meanwhile, Fed’s Bullard became the latest member to hit the wires with hawkish views, which added to the bullish tone around USD. The spot closed the day on a weaker note at 1.4114, marking a breach of rising trend line on the daily closing basis.
Eyes UK retail sales
UK retail sales are likely to show a sharp slowdown in consumption in February. British Retail Consortium data released on March 7 showed hopes for a strong start to the year for the high street have faded as retail sales growth slowed almost to a standstill last month. The BRC figure came in at 0.1% in February, which is well below the January figure of 2.6%.
Consequently, odds of a weaker-than-expected official UK retail sales figure are high and may result in another wave of selling towards 1.40 handle. However, a better-than-expected figure would be a positive surprise and could trigger a rebound in Sterling 1.4160 levels.
A combination of a better-than-expected UK retail sales figure and weaker US durable goods data, dovish Fed speak could set the tone for the formation of the inverse head and shoulder on the daily chart with neckline at 1.4490.
Technicals – Watch out for a rebound
Sterling’s drop from the last week’s high of 1.4515 followed by a break below rising trend line yesterday has left the doors open for a drop to 1.4032 (23.6% of 1.4669-1.3835) -1.40 levels.
Daily RSI’s dip below 50.00 further adds to credence to the bearish break from the rising trend line seen yesterday.
However, the oversold RSI on the hourly and 4-hour chart could result in a corrective rally to 1.4160 (rising trend line hurdle).
Moreover, a rebound from the range of 1.3950-1.41 followed by a break above rising trend line hurdle would shift risk in favor of a formation of inverted head and shoulder formation with neckline at 1.4490.
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