The GBP/USD pair fell to a multi-year low of 1.4252 even though the US macro economic data – retail sales, industrial production and regional manufacturing indices disappointed market expectations. Overall the US data said the manufacturing sector fell deep into recession in January, while the consumer spending remained anemic in the festive season of December.
Fed unconcerned about financial market instability?
The Fed policy makers are surprisingly sticking to their optimism despite the financial market instability and this may be the reason for the USD strength despite weak domestic data. On Friday, Fed’s Dudley assured markets that the economic situation has not changed much since the December Fed rate hike. This is surprising since Fed policymakers immediately react to financial market instability with dovish statements. On the other hand, BOE minutes released last week remained dovish and further reduced the probability of a rate hike this year. Hence, the GBP/USD fell to a new multi-year low of 1.4252 and could remain weak.
Technicals – Falling channel on the 4-hr chart
Sterling’s close below 1.4372 (76.4% of Jan 2009 low-July 2014 high) has opened doors for a drop to 1.42 (falling channel support).
A technical correction cannot be ruled out as the pair has shed more than 800-pips in last one month.
However, a technical correction is likely to run out of steam as the pair nears the 5-DMA located at 1.4410.
Since late December, the pair met with fresh offers each time it neared 5-DMA. Hence, the prospects of healthy correction would increase once the spot sees a daily close above 5-DMA.
EUR/USD Analysis: Bullish break on charts, Eyes 1.10
The risk aversion in the US equities pushed the EUR/USD pair to a intraday high of 1.0984 levels before profit taking saw the pair close at 1.0907. The carry unwind due to risk aversion led to strength in EUR (funding currency). The action in the equity markets could continue to guide the pair today as the data calendar is empty.
Technicals – Bullish break from falling channel
- The daily chart shows a bullish break from the falling channel on the daily chart.
Euro turned lower from the Asian session high of 1.0928, but found support at 1.0890 (38.2% of 1.1495-1.0517) and is now hovering around the falling channel support of 1.0897 levels.
The bullish break on Friday means the pair is likely to rebound from 1.0897 levels and make another attempt at 1.10 levels.
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