GBP/USD: On the back foot ahead of the UK retail sales release
- Bull grip has weakened on the back of dismal UK wages and CPI data.
- Risk reversals show a rise in implied volatility premium for GBP puts.
- Weaker-than-expected UK retail sales could turn the tide in favor of the bears.
The GBP/USD pair risks bearish reversal if the UK retail sales figure, due at 08:30 GMT, disappoints market expectations.
The currency pair began the week on a positive note, rising to a fresh post-Brexit referendum high of 1.4377 on Tuesday. However, GBP longs lightened up in the last 48 hours, courtesy of the dismal UK wages price inflation and consumer price index release
The pair hit a low of 1.4173 yesterday and was last seen trading just under the 1.42 mark. The retreat from 1.4377 to 1.4173 indicates the rally from the low of 1.3965 has run out of steam. Also, the one-month 25 delta risk reversals (GBP1MRR) have dropped to a one-month low of -0.275, highlighting the increased demand for the GBP puts (sell GBP).
Clearly, the bull grip has weakened and the tide could turn in favor of the GBP bears if the UK March retail sales fall more than the expected drop to 0.5 percent month-on-month.
GBP/USD Technical Levels
A close below the ascending (bullish biased) 10-day moving average (MA) would confirm a short-term bullish-to-bearish trend change. Acceptance below 1.4145 (Feb. 16 high) would open up downside towards 1.4016 (50-day MA) and 1.3965 (April 5 high).
On the higher side, a move above 1.4252 (5-day MA) could yield a re-test of 1.4346 (Jan. 25 high) and 1.4377 (weekly high).
Author
Omkar Godbole
FXStreet Contributor
Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.
