GBP/USD Forecast: Awaits bullish break from falling channel, may re-test 5-DMA

The GBP/USD pair rose as high as 1.4363 on Friday, before trimming gains to end the day moderately higher at 1.4262 levels. The UK retail sales figure released on Friday was way below estimates. However, the UK public sector net borrowing number dropped sharply and hence triggered a much needed corrective rally in the air.

GBP extremely oversold

Usually, the public sector net borrowing number is not a market moving figure. But on Friday, the data single handedly pushed the GBP/USD pair higher; that too in face of a weaker-than-expected UK retail sales number. This tells us that traders are looking for reasons – even remotely positive - to take profits on GBP shorts.

Eyes CBI total trends survey figure

The survey figure is expected to show the manufacturer’s orders book declined in January. The traders would also keep an eye on the details – domestic orders, export orders, and employment. The manufacturing sector has slowed down considerably in last two quarters and hence a weaker print would not be a surprise for the oversold GBP. Nevertheless, it may make a bullish break from the falling channel difficult.

Technicals- Stuck at falling channel resistance

• The hourly chart shows, Sterling is witnessed a fake bullish breakout on Friday and ran into offers closer to falling channel resistance in Asia today.

• The spot may fall back to its 5-DMA seen today at 1.4213 if the pair fails to take out the falling channel resistance of 1.4316 in early Europe.

• On the other hand, a bullish break would expose Friday’s high of 1.4363. The outlook would turn bullish only if the pair sees a break above 1.4363.

EUR/USD Analysis: could re-test falling trend line resistance

The EUR/USD pair fell to 1.0792 levels on Friday as the rally in oil prices and Draghi’s strong hint at more easing in March stabilized the risk sentiment in the markets. Softer Eurozone PMI figures also weighed over the single currency. Manufacturing and service-sector PMI slowed in January bringing the Eurozone's composite index down to 53.5 from 54.3. The pair has found bids around 1.0788 (50% of 1.0517-1.1060) and now trades around 1.0815.

Eyes German IFO and Bundesbank report

The German IFO readings could surprise on the downside amid slowdown in the private sector activity (as highlighted by the PMIs on Friday) and financial market instability. A weaker number could push the EUR lower. Meanwhile, the Bundesbank’s monthly report may not receive much attention from the markets. However, hawkish tone would mean the Germany and the ECB are not on the same page and this may reduce the probability of more easing in March.

The macro data and the Bundesbank’s report may be ignored by the markets if the oil prices resume the downtrend, dragging the equities lower. In this case, EUR would head higher.

Technicals – Falling channel intact

• Euro’s sharp fall on Friday kept the falling channel formation on the daily chart intact.

• Prices rebounded from around 1.0788 (50% of 1.0517-1.1060) and may head higher to 1.0860 (falling channel resistance). A break higher would expose 1.0890 (38.2% of 1.1495-1.0517).

• On the other hand, a failure to take out 1.0860 could send the pair back to 1.0788 (50% of 1.0517-1.1060).

• A daily close below 1.0788 would mean a short-term top at 1.0985 is in place and the pair is now heading towards the channel support at 1.0590.