Pound crosses closer to significant levels

GBPCAD and GBPJPY, H4 and Daily

The cable has recouped most of the losses seen after UK data, where retail sales unexpectedly contracted by 0.5% m/m. The pairing printed a 1.2982 low, which is the lowest level seen since last September, and extending the present run lower into a third consecutive day. The Pound has since recouped back above 1.3000, although it has remained about 10 pips below pre-release levels at 1.3018-20.

There is a justification behind the dip in Retail Sales, as the ONS stats office has stressed, in that hot weather and the national fixation on the World Cup combined to lower both footfall in non-food stores and online purchases, which more than offset strong food store sales. The underlying trend also remains strong, with Retail Sales rising 2.1% q/q in the three months to June, which is the largest increase since the three months to February 2015, with growth seen across all the main sectors.

The data maintains the call for BoE to hike the repo rate by 25 bp on August 2, although this is admittedly now a less-than-full-conviction view following the unexpected dip in UK core CPI to 1.9% y/y from 2.1%. Brexit remains in sharp focus given the fragility of both the prime minister and the government, with ideologically-driven Brexiteers MPs threatening disruption.

Hence directional risks continue for the Pound as being greater to the downside than to the upside against almost all major currencies. For example GBPCAD broke yesterday below the range seen since June 29, between 1.7284 and 1.7475. This move continued today as well, turning the outlook from neutral to negative. Hence intraday 2 consecutive hourly sessions below the round Support at 1.7200 could alert the retest of the next Support at 1.7150. A breakout below that could take the pair to 2-month low at 1.7050. To the upside, only a break above latest daily down fractal around the 1.7284 -1.7300 area could give some positive vibes.

Additionally, another interesting pair is the GBPJPY , which has been retesting so far today the 20-day MA which coincides with the FE 61.8 from the rebound on June 28. The pair confirmed an evening star pattern (bearish pattern) on Tuesday, while it is moving lower for the 3rd consecutive day. A closing today below the 20-day Ma at 146.60 would indicate the retest of he next long term Support level at the 23.6% Fibonacci retracement level since April 13, at 145.68. Daily RSI is at 49 from 65 high. MACD decreases however it is still above signal line and within positive territory. Therefore, momentum indicators give us mixed signs. Daily Resistance comes at the 148.50-149.00 area, which if it breaks we could start turning in focus the 150.00-151.00 area.

The bearish view holds also in the 4-hour chart as the pair moves below 20 and 50-period MA with lower Bollinger Bands pattern extending to the downside. It is currently consolidating around 146.90. The next immediate Support as mentioned above is at 146.60, which is also the 200-period SMA in the 4-hour chart. Hence this level could provide support to the pair. A rebound from this level could lead to the swing up to the 20-period MA at 148.00. In the 4-hour chart, RSI creates lower lows and it is currently set at 33. MACD increases to the downside above its signal line confirming the increase of the negative bias.

The Canadian calendar is empty today, but picks tomorrow with the release of retail sales and CPI data. Retail sales expected to snap back by 1.0% in May after the 1.2% loss in April that was blamed on poor weather during the month. The CPI is anticipated to slip 0.1% in June (m/m, nsa) after the surprisingly slim 0.1% gain in May, as falling gasoline prices impact in June. The annual growth rate is seen at 2.2% (y/y, nsa), matching the 2.2% y/y clip in May. The three core CPI measures are expected to maintain 1.9% annual rate of expansion in June.

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Andria Pichidi

Market Analyst


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