GBP/USD pops and drops at key confluence resistance area in 1.3050s

GBP/USD has popped to the upside in early Asia, momentarily breaking the consolidation above a 38.2% Fibonacci retracement of the Sep-Nov lows and highs and marking fresh territories in the 1.30 handle. GBP/USD rallied to a high of 1.3057 from 1.3034 and away from 50-day moving average, (now testing the 21-dma resistance), despite the troublesome UK monetary policy outlook and Brexit uncertainties. However, the rally was faded with a lack of volume supporting the move. 

It was a relatively significant spike of some 20 pips, although there is little out being reported that may have been the catalyst. The next key UK data release is ONS December Retail Sales, due Friday (0930GMT). Expectations are for +0.5% MoM and +2.6% YoY vs -0.6% MoM and +1.0% Y0Y in November, anything below forecast could further raise Jan 30 Bank of England rate cut probabilities that climbed to around 64% earlier this week (vs 5% a week ago (before Carney spoke on Jan 9) following a series of negative data and additional members of the Monetary Policy Committee waving their dovish stick.

BoE hawk and chief economist next up

However, BoE hawk and chief economist, Andy Haldane, is due to speak on Thursday (at 1800GMT). Bulls will be hoping for some hawkish rhetoric and optimism around the outlook for the UK economy from him. Haldane was hawkishly vocal last July when he would resist lower borrowing costs unless there was a sharp downturn. However, much has changed since then especially with regards to subdued UK growth as well as weak inflation and wages. For instance, in London on Wednesday, UK CPI inflation for December came in lower than expected, at a three-year-plus low of 1.3% (sending cable to a low of 1.2985) which adds to the stew of data disappointments of late, likely to keep the pound in check. 

GBP/USD levels

GBP/USD popped to test the rising channel's resistance which has a confluence of the 21-day moving average. There is also a confluence of the 3rd Jan lows, reinforcing the resistance level at the midpoint of the 1.30 handle. Bulls will expect a test of the 38.2% Fibonacci retracement levels of the late Dec highs to YTD lows. 

• GBP/USD Forecast: Pound pressured by rate cut speculation

At the time of writing, GBP/USD is trading at 1.3022 having risen in a range of between 1.2984 and 1.3042 following the signing of the US-China trade deal. While there was a bid in US stocks, yet again marking all-time highs, the price action elsewhere could be telling. Oil prices eased as global trade is not expected to pick up considering most tariffs remain in place despite the trade deal being reached.