GBPUSD

The bullish move in the GBP/USD pair ran out of steam again on Friday near a critical resistance at 1.4578. The pair eventually closed at 1.4498 levels. A stronger than expected US retail sales data helped the USD recover losses.

Corrective rally in equities could support Sterling

The pickup in consumer spending, which accounts for 70% of the US economy, is likely to keep the equity bears at bay. Furthermore, the Dow index is likely to rebound from the 23.6% Fibo retracement of the rally from 2009 low to 2015 high as discussed here (). Hence, doors are opened for a corrective rally in the British Pound as well. Moreover, the currency could find support via sell-off in the EUR/GBP pair.

However, caution is advised as Pound is also haunted by Brexit fears. The latest poll has shown a large increase in those favoring a split and that is not good news for Pound. The stability in the equities also means Fed would not hesitate to raise rates if payrolls data for Feb is strong. Hence, a bullish break in Cable today could turn out to be a bull trap.

Technicals – At make or break level

  • At 1.4532, the spot is trading just above the confluence of technical support – 1.4516-1.4519 (23.6% of 1.5930-1.4079 + 38.2% of 1.5230-1.4079 + falling channel resistance)

  • A failure to break above 1.4578 followed by a daily close below 1.4516 could trigger a fresh drop to 1.4351 (23.6% of 1.5230-1.4079).

  • On the other hand, a daily close above falling channel resistance would open doors for a bullish break above 1.4578 and rally to 1.4655 (50% of 1.5230-1.4079).


EUR/USD Analysis: Draghi could trigger a bearish break from rising trend line

EURUSD

The EUR/USD pair ended on a weaker note following the rebound in the US stocks on Friday. Rebound in oil prices and a better-than-expected US retail sales data pushed up treasury yields and helped the USD strengthen on Friday. The Asian stocks also began the current week on a positive note, pushing the EUR/USD pair lower to 1.1212 levels.

ECB President Draghi’s appearance and testimony before the EU Parliament’s economic committee will be the main event today. Draghi should not hesitate to signal more stimulus; given the recent rise in the EUR/USD, low inflation and rising Greek and periphery yields. Dovish hints could push the spot lower to 1.11-1.1088 levels.

Technicals – Strong support at 1.1204

  • Euro’s bearish price-RSI divergence on the hourly chart followed by a bearish break from smaller rising trend lines, coupled with possible dovish comments from Draghi could see the breakdown of 1.1204 (rising trend line – red). The spot could drop to 1.1088 (50% of Mar low-Aug high).

  • On the other hand, a rebound from the rising trend line (red) followed by a 15-min closing above 1.1236 (38.2% of Mar low-Aug high) could see the spot test 1.1260 (rising trend line resistance – black). A break higher would expose 1.13 levels.

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