GBP/USD spiked almost 200 pips on Monday as technical correction in the GBP/JPY pair gathered pace. The spot clocked a high of 1.4286 before trimming gains to end the day around 1.4235 levels. The latest sales monitor from the British Retail Consortium (BRC) showed yesterday retail sales were flat lined in March. Total retail sales were unchanged on March 2015, compared to a 4.7% annual increase registered in this month last year.
The spot is trading today on the front foot around 1.4245 levels and is looking to take out 1.4252 (50% of 1.4669-1.3835) levels.
Eyes CPI report
UK cost of living as measured by consumer price index (CPI) is expected to have ticked higher in March – 0.4% y/y and 0.3% m/m. Core inflation is also seen rising 1.3% y/y as opposed to February figure of 1.2% y/y. It is to be noted that a rebound in inflation may have been priced-in, given the gilt yields rallied yesterday and added to the bid tone around GBP. Hence, it would take a better-than-expected headline and core CPI figure to push Cable above and beyond yesterday’s high of 1.4286-1.43 levels. Also note that April has been a good month for Sterling for almost a decade now. Hence, a better-than-expected figure could result in a much sharper rally.
On the other hand, a weaker-than-expected figure could see the bird erase major part of its gains witnessed yesterday. Meanwhile, data printing in line with estimates could see Cable fade spike to near 1.43 levels.
Technicals – Watch out for a rejection at 1.4252-1.4257
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Sterling’s bullish break from a larger falling trend line indicates a short-term bottom is in place now at 1.4005 and the bullish move may gather pace if the spot manages to take out 1.4252 (50% of 1.4669-1.3835) – 1.4257 (50-DMA), in which case immediate upside appears capped around 1.43 given the hourly RSI would then head back to overbought territory.
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On the contrary, failure to take out/sustain above 1.4252 (50% of 1.4669-1.3835) followed by a break below rising trend line hurdle (now seen around 1.4213) would open doors for a drop to 1.4170 levels.
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Short-term bullish invalidation is seen only if the spot makes a move back inside larger falling trend line level (now seen at 1.4130).
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