GBP/USD Forecast: Likely to slide further amid BoE rate cut speculations, fears of a no-deal Brexit

  • Dismal UK retail sales prompted some aggressive selling around GBP/USD on Friday.
  • Some follow-through USD strength further collaborated to over 100 pips intraday slide.

The GBP/USD pair failed to capitalize on Friday's intraday positive move to levels beyond the 1.3100 round figure mark, or over one-week tops, and came under some aggressive selling pressure in reaction to dismal UK Retail Sales data. In fact, the headlines sales contracted sharply by 0.6% in December as compared to 0.7% rise expected and the previous month's awful reading was also revised down to -0.8% from -0.6%. The yearly sales were up by 0.9% as against 2.6% expected. Adding to the disappointment, sales excluding fuel dropped 0.8% MoM and recorded a modest 0.7% YoY growth, both missing consensus estimates by a big margin.

Pound weighed down by a combination of factors

The data further strengthened the case for a 25bps BoE rate cut at the upcoming monetary policy meeting on 30 January. This comes on the back of growing market concerns that Britain will crash out of the European Union at the end of this year and weighed heavily on the British pound. The pair tumbled around 110 pips from daily tops – snapping three consecutive days of winning streak – and was further pressurized by some follow-through US dollar buying interest. The greenback remained well supported by expectations that the US economy will continue to expand and reduced odds of any further interest rate cuts by the Fed.

The pair finally settled near the lower end of its daily trading range and remained on the defensive, below the key 1.30 psychological mark, through the Asian session on Monday. In absence of any major market-moving economic releases from the UK, any incoming Brexit-related headlines might influence the sentiment surrounding the sterling and produce some meaningful trading opportunities. Meanwhile, the US banks will be closed in observance of Martin Luther King Day and hence, the GBP price dynamics might continue to act as an exclusive driver of the pair's momentum on the first day of a new trading week.

Short-term technical outlook

From a technical perspective, the pair on Friday faced rejection near a confluence barrier comprising of 200-period SMA on the 4-hourly chart and the top end of over two-week-old descending trend-channel. The subsequent failure to defend the 1.30 handle might now be seen as a key trigger for bearish traders. Some follow-through selling below the 1.2985-80 region will reaffirm the negative outlook and might now turn the pair vulnerable to accelerate the slide towards testing the trend-channel support (sub-1.2900 levels). A decisive break through the channel support should pave the way for a further near-term depreciating move towards the 1.2825 intermediate horizontal support en-route the 1.2800 handle and early November swing lows support near the 1.2770-65 region.

On the flip side, the 1.3050-55 area now seems to act as an immediate resistance, above with the pair is likely to aim back towards challenging the mentioned confluence hurdle, around the 1.3085 region. A sustained strength above the mentioned barrier might prompt some short-covering move and lift the pair towards testing its next resistance near the 1.3165-70 region. The momentum could further get extended towards reclaiming the 1.3200 round-figure mark before the pair eventually heads towards mid-1.3200s and the recent swing high resistance near the 1.3285 region.


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