GBPUSD

The GBP/USD pair found bids on Thursday again as it neared the falling channel support seen on the 4-hour chart. The pair recovered from the low of 1.4079 and rose as high as 1.4249 (5-DMA yesterday) before closing with moderate gains 1.4220. A major part of the recovery was triggered by a fall in the EUR/GBP cross after the ECB President Draghi hinted at more easing in March.

Focus on UK retail sales

Month-on-month the UK retail sales are seen contracting 0.3%. Year-on-year, the retail turnover growth is seen slowing to 4.3% from Nov’s 5.0%. Core retail sales are also seen contracting. If the number prints in negative as expected/or weaker-than-expected, then we are likely to see a renewed sell-off in the GBP/USD pair. On the other hand, a positive surprise could see the pair head towards 1.4340-1.4350.

A strong retail sales figure is a last hope for the hawks in the market who still expect the BOE to hike rates. A strong domestic consumption is necessary as only then the displaced workers (from energy and mining sector) could find employment. Hence labor markets could continue to tighten only if the domestic consumption ticks up.

Technicals – Flirting with falling trendline on 4-hr chart

  • Sterling’s sharp recovery from the low of 1.4079 followed by a break above resistance of 1.4219 (on 4-hr chart) could see the pair break above the falling trend line (red) resistance and move towards 1.4340-1.4350 (falling channel resistance).

  • On the other hand, a failure to sustain above 1.4219 could see the pair revisit 1.4129 levels.

  • The pair is moving around the 5-DMA now. The pair has repeatedly ran into offers around 5-DMA in last on month, hence bulls should remain cautious.

  • Still, the bullish break above the falling trend line on 4-hr could see the pair chew through offers around 5-DMA.


EUR/USD Analysis: Not impressed by Draghi, bullish view intact

EURUSD

The EUR/USD pair fell to an intraday low of 1.0777 levels after the ECB’s Draghi hinted at more easing in March. However, fresh bids quickly pushed the pair back above 1.08, from where it recovered further to 1.0872 levels. The risk-on rally in Asia on BOJ easing chatter has pushed the par back to its 50-DMA at 1.0824 levels.

Markets not impressed by Draghi?

In past, Draghi’s jawboning resulted in atleast 100-pip weaker closing. However, yesterday’s action was slightly different. The pair did dip more than 100-pips but managed to recover losses and end the day as if Draghi did not say a word about easing. Overall, it appears the markets believe Draghi will not act if the EUR/USD stays at the current levels. Fresh easing would happen only if the EUR is significantly higher from the current levels.

As for today, the pair could drop below its 50-DMA if the PMI indices across the Eurozone highlight contraction of activity in January.

Technicals – Daily close below 50-DMA is bearish

  • Euro’s sharp recovery from the low of 1.0777 followed by a daily close way above 50-DMA has left the doors open for a rally to 1.10 levels.

  • The pair could revisit 1.0875-1.09 levels if it manages to sustain above its 50-DMA at 1.0824 levels.

  • The outlook would turn bearish if the pair sees a daily close below 50-DMA today.

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