The GBP/USD pair extended the recovery from the low of 1.4895 to 1.5240 levels on Friday as the USD was offered across the board ahead of the weekend. The US advance retail sales figure printed lower than estimates, but clocked 4-month high. However, the data failed to keep the USD bid.
Risk aversion, commodity sell-off raising doubts over Fed liftoff
Some amount of worry appears to have crept into the Markets that the ongoing risk aversion in the markets and the sell-off in oil and other commodities may force the Fed to delay its liftoff. However, the broad consensus is the liftoff is a done deal. But, the rout in commodities and risk aversion could lead to a slower-than-expected takeoff - a move less than 25bps. This may be one of the reasons why the 10-yr treasury yield fell 10bps last week and the USD was offered on Friday.
The data docket in the UK and US is empty today. The USD may find bids today in Europe and US as traders adjust positions in anticipation of the liftoff this Wednesday.
Technicals – Bearish below 1.5185
The intraday bias stays neutral, so long as the pair remains above 1.5185 (23.6% of July 2014-April 2015 plunge). Sterling’s recovery from the bottom of 1.4895 I still well below 1.5335 (Nov 19 high and near-term top), and thus the odds remain in favour of the continuation of the down move from the high of 1.5930 seen in June. On intraday basis, a break below 1.5185 could see the pair test the trend line (drawn from Nov 2 high-Nov 19 high) support at 1.5125-1.5130.
EUR/USD Analysis: Eyes 38.2% Fibo support
The EUR/USD pair rose to an intraday high of 1.1031 on the back of the broad based USD weakness in the NY session on Friday, but trimmed gains to end the week at 1.0985 levels. The overcrowded long USD trade heading into the decision witnessed considerable unwinding since the ECB meeting. This means the traders could once again enter fresh USD longs in anticipation of the rate hike.
Technicals – Bearish intraday bias
Euro’s repeated failure to rise above 200-MA at 1.1030 and sustain above the rising trend line (drawn from the March low-April low) and 1.1006 (50% of 1.1495-1.0517) indicates the currency is likely to revisit the strong support at 1.0890 (38.2% of 1.1495-1.0517). The 50-DMA at 1.0943 could offer support to the pair, however, another failed attempt to take out 1.10 could trigger a sell-off that would take 50-DMA support out of action and open doors for a drop to 1.0890. The EUR bulls could come-in strong only above its 200-DMA at 1.1030.
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