Double top pattern keeps GBP/USD under selling pressure before UK retail sales report

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GBP/USD Pullback to Trend Line Support

GBP/USD Pullback to Trend Line Support

GBP/USD on Wednesday faced strong resistance near the 50% fib level after yesterday gains amid surprise increase in the Core Consumer Price Index (CPI); double top pattern on the daily chart is, however, keeping the pair under selling pressure.

Technical Analysis

The pair is being traded near 1.6528 at 10:15 GMT in London. Immediate support may be noted near 1.6484, the channel support as demonstrated in the following chart. A break and daily close below the channel could push the pair into deeper bearish trend, opening doors for initially 1.6390 and then 1.6250 which are the 76.4% fib level and old pivot zone respectively.

 

On the upside, cable is expected to face an immediate hurdle near 1.6537, the 50% fib level, ahead of 1.6687 that is the 26.6% fib level and then the channel resistance. The price recently formed a classic double top pattern on the daily chart whose neckline is sitting in around 1.6583. A daily close above the neckline will scrap the price pattern, exposing fresh multi-year highs above the 1.6850 milestone.

Britain’s Inflation Report

The Core CPI—a main gauge for inflation—rose surprisingly yesterday to 1.7% in February compared with 1.6% in the same month of the year before, the market was expecting a steady reading at 1.6% hence the actual outcome upbeat the expectations.

On the other hand, CPI—relatively less accurate gauge for inflation—came out in line with the expectations of 1.7% in February.  The data might increase pressure on the Bank of England (BoE) for earlier than expected rate hike because house prices in the UK have jumped to the highest level in more than 10 years thanks to the low interest rate, rising purchasing power, and high employment.

US Economic Reports

Several high profile fundamental events are due in the US basket later this week. Today at 12:30 GMT, the Census Bureau of the US will release the sales data for durable goods. Sales in February jumped by 1% as compared to 1.1% decline in the month before, the forecast says. Tomorrow the Commerce Department of the US will release the growth figures for the fourth quarter. US GDP declined to 1.6% in the last quarter as compared to 2% in the third quarter, analysts believe.

UK Retail Sales

On Thursday, Britain’s national statistics department is due to release the retail sales data for the previous month. Sales declined to 2.5% in February as compared to 4.3% in the same month of the previous year. Similarly, sales excluding fuel also dropped to 2.8% last month compared with 4.8% in the corresponding month of the previous year. Better than expected sales data will be considered bullish for GBP/USD and vice versa.

Conclusion

The pair held the upward slope channel nicely after the Fed tapering decision and extended gains yesterday on the upbeat CPI data. A daily close above the 1.6583 neckline should push the pair into stronger bullish momentum, exposing fresh multi-year highs. 

To contact the writer of this story: Usman Ahmed at usman@forexminute.com