The bullish move in the GBP/USD pair ran out of steam again on Friday near a critical resistance at 1.4578. The pair eventually closed at 1.4498 levels. A stronger than expected US retail sales data helped the USD recover losses.
Corrective rally in equities could support Sterling
The pickup in consumer spending, which accounts for 70% of the US economy, is likely to keep the equity bears at bay. Furthermore, the Dow index is likely to rebound from the 23.6% Fibo retracement of the rally from 2009 low to 2015 high as discussed here (). Hence, doors are opened for a corrective rally in the British Pound as well. Moreover, the currency could find support via sell-off in the EUR/GBP pair.
However, caution is advised as Pound is also haunted by Brexit fears. The latest poll has shown a large increase in those favoring a split and that is not good news for Pound. The stability in the equities also means Fed would not hesitate to raise rates if payrolls data for Feb is strong. Hence, a bullish break in Cable today could turn out to be a bull trap.
Technicals – At make or break level
At 1.4532, the spot is trading just above the confluence of technical support – 1.4516-1.4519 (23.6% of 1.5930-1.4079 + 38.2% of 1.5230-1.4079 + falling channel resistance)
A failure to break above 1.4578 followed by a daily close below 1.4516 could trigger a fresh drop to 1.4351 (23.6% of 1.5230-1.4079).
On the other hand, a daily close above falling channel resistance would open doors for a bullish break above 1.4578 and rally to 1.4655 (50% of 1.5230-1.4079).
EUR/USD Analysis: Draghi could trigger a bearish break from rising trend line
The EUR/USD pair ended on a weaker note following the rebound in the US stocks on Friday. Rebound in oil prices and a better-than-expected US retail sales data pushed up treasury yields and helped the USD strengthen on Friday. The Asian stocks also began the current week on a positive note, pushing the EUR/USD pair lower to 1.1212 levels.
ECB President Draghi’s appearance and testimony before the EU Parliament’s economic committee will be the main event today. Draghi should not hesitate to signal more stimulus; given the recent rise in the EUR/USD, low inflation and rising Greek and periphery yields. Dovish hints could push the spot lower to 1.11-1.1088 levels.
Technicals – Strong support at 1.1204
Euro’s bearish price-RSI divergence on the hourly chart followed by a bearish break from smaller rising trend lines, coupled with possible dovish comments from Draghi could see the breakdown of 1.1204 (rising trend line – red). The spot could drop to 1.1088 (50% of Mar low-Aug high).
On the other hand, a rebound from the rising trend line (red) followed by a 15-min closing above 1.1236 (38.2% of Mar low-Aug high) could see the spot test 1.1260 (rising trend line resistance – black). A break higher would expose 1.13 levels.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD rises toward 1.0800 on USD weakness
EUR/USD trades in positive territory above 1.0750 in the second half of the day on Monday. The US Dollar struggles to find demand as investors reassess the Fed's rate outlook following Friday's disappointing labor market data.
GBP/USD closes in on 1.2600 as risk mood improves
Following Friday's volatile action, GBP/USD pushes higher toward 1.2600 on Monday. Soft April jobs report from the US and the improvement seen in risk mood make it difficult for the US Dollar to gather strength.
Gold gathers bullish momentum, climbs above $2,320
Gold trades decisively higher on the day above $2,320 in the American session. Retreating US Treasury bond yields after weaker-than-expected US employment data and escalating geopolitical tensions help XAU/USD stretch higher.
Addressing the crypto investor dilemma: To invest or not? Premium
Bitcoin price trades around $63,000 with no directional bias. The consolidation has pushed crypto investors into a state of uncertainty. Investors can expect a bullish directional bias above $70,000 and a bearish one below $50,000.
Three fundamentals for the week: Two central bank decisions and one sensitive US Premium
The Reserve Bank of Australia is set to strike a more hawkish tone, reversing its dovish shift. Policymakers at the Bank of England may open the door to a rate cut in June.