GBP/USD Forecast: Pauses ahead of a confluence barrier, UK retail sales eyed for a fresh impetus

The GBP/USD pair gained some follow-through traction for the third consecutive session and climbed to fresh weekly tops, around the 1.3080-85 region on Thursday. The uptick lacked any obvious fundamental catalyst and also seemed unaffected by growing concerns that Britain will crash out of the European Union at the end of this year. Even BoE rate cut speculations also did little to hinder the pair's intraday positive move. The incoming softer UK macro data has strengthened the case for a 25bps BoE rate cut at the upcoming monetary policy meeting on 30 January. However, the market already seems to have discounted the move and the same was evident from the British pound's relative outperformance.

Bulls even shrugged off resurgent US dollar demand, which picked up some additional pace following the release of mostly upbeat US economic releases. Data released on Thursday showed that the headline retail sales recorded a growth of 0.3%, matching consensus estimates and the previous month's reading. Meanwhile, sales excluding automobiles (core retail sales) rose by 0.7% during the reported month and the closely watched Retail Sales Control Group increased by 0.5%, both surpassing consensus estimates. Adding to this, the Philly Fed Manufacturing Index jumped to 17 points for January as compared to the previous month's reading of 0.3 and much better than a rebound to 3.8 points anticipated.

The pair finally settled near the top end of its daily trading range and was now seen consolidating the gains near weekly highs through the Asian session on Friday. Moving ahead, Friday's release of the UK monthly retail sales data for December will now influence the sentiment surrounding the sterling and produce some short-term trading opportunities. Later during the early North-American session, some second-tier US economic data will also be looked upon for some impetus on the last trading day of the week.

Short-term technical outlook

From a technical perspective, the ongoing positive momentum now seems to have paused near a confluence resistance – comprising of 200-period SMA on the 4-hourly chart and the top end of a three-week-old descending trend-channel. A sustained strength above the mentioned barrier might now be seen as a key trigger for bullish traders and lift the pair beyond the 1.3100 handle, towards testing the next resistance near the 1.3165-70 region. Some follow-through buying might further accelerate the momentum 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.

On the flip side, immediate support is now pegged near the 1.3055-50 region, which if broken might accelerate the slide back towards the key 1.30 psychological mark. Failure to defend the mentioned support, leading to a subsequent weakness below the 1.2985-80 region might turn the pair vulnerable to aim towards testing the trend-channel support (sub-1.2900 levels). A decisive breakthrough 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.