EUR/USD and GBP/USD Rally after Negative US Retail Sales Data

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EUR/USD and GBP/USD Rally after Negative US Retail Sales Data

US Retail sales data for December was horrible according to the Census Bureau allowing the EUR/USD and GBP/USD to rally after the release.

Retail Sales m/m (Dec): -0.9%
Forecast: 0.2%
Previous: 0.4% (revised down from 0.7%)us retail sales dec 2014

(click to enlarge; source: forexfactory.com)

Core Retail Sales m/m (Dec.): -1.0%
Forecast: 0.1%
Previous: 0.1% (revised down from 0.5%)

Most expected December’s numbers to be lower than the previous couple of strong months. However, the negative reading and the downwards revision on November’s reading suggested a less rosier recovery than previously thought.

The silver lining is that the overall trend was strong in Q4, and we can say that looking at Q4 all together, retail sales data was decent. Still, the market might want to scale back on those optimistic interest-rate projections for April. In turn, the USD should give back some of its recent gains.

EUR/USD 1H Chart 1/15
eurusd 1h chart 1/15
(click to enlarge)

The EUR/USD started the 1/14 session with a push to a new low at 1.1727. It looked poised to continue its prevailing downtrend until the disappointing US retail sales data. After the release, EUR/USD rallied sharply.

However, we can see that there were sellers around 1.1840, at a projected falling speedline. This keeps price this week in a bearish mode with lower highs and lower lows.

While the USD might lose some steam, the euro is still on the bear-express as the market is expecting the ECB to announce implementation of QE in its next couple of meetings. Now, if price can hold above 1.1730 and return above 1.1850, the mode might have changed, but for now, it remains bearish, more so because of euro’s weakness than because of the USD’s strength.

GBP/USD 1H Chart 1/15
gbpusd 1h chart 1/15
(click to enlarge)

The GBP/USD found support at 1.5043 last week and has been in a bullish correction. This week, it was able to remain bullish after poor UK inflation data. Today, after the poor US retail sales data, GBP/USD made another push higher.

Now, there will be a resistance pivot at 1.5275 and some common resistance around 1.53 as well. Because the prevailing trend is still bearish we should respect the resistance here at least in the short-term. However, our bearish outlook will first have to be limited to the 1.52 support/resistance area. A return below 1.52 might reintroduce the bearish continuation scenario. Then a break below 1.5090 should confirm the bearish mode.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.