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   •  Having failed to make it through a four-month-old descending trend-line hurdle, the pair witnessed some profit-taking and the downfall accelerated after dismal UK retail sales data.

GBP/USD daily chart

   •  The intraday corrective slide seems to have found some support ahead of 23.6% Fibonacci retracement level of this week’s 1.2668 to 1.3000 strong upsurge amid a subdued USD action.

   •  Technical indicators on the 1-hourly chart have slipped below the mid-point but continue to hold in the bullish territory on 4-hourly/daily chart, suggesting some dip-buying interest.

1-hourly chart

   •  Hence, any subsequent fall below the mentioned support near the 1.2925 area might be seen as a buying opportunity and is more likely to be limited by 100-hour SMA support.

• Crude oil prices keep the trade near yearly tops.
• Prices remain supported by OPEC+ output cuts.
• Driller Baker Hughes will publish weekly oil rig count later.

Prices of the barrel of American reference for the sweet light crude oil are trading on a firm note and are approaching the key $53.00 handle, recording at the same time new multi-day highs.

WTI up ahead of US data

WTI inches to 5-day tops in the $52.80 region per barrel today and is reverting yesterday’s pullback to sub-$51.00 levels, where some decent support emerged.

Prices of the West Texas Intermediate appear to have left behind the recent re-emergence of oversupply gluts, while the OPEC+ deal to curb production, disruptions in Venezuela and Libya and US sanctions against Iranian oil exports keep underpinning what it seems to be the beginning of a fresh bull market in oil.

Looking ahead, Baker Hughes will release its weekly report on the US drilling activity.

WTI significant levels

At the moment the barrel of WTI is up 0.87% at $52.62 facing the next resistance at $53.22 (2019 high Jan.11) seconded by $54.48 (monthly high Dec.4) and finally $58.00 (high Nov.18 2018). On the downside, a break below $51.40 (10-day SMA) would aim for $50.34 (low Jan.14) and then $48.49 (21-day SMA).

   •  Disappointing UK monthly retail sales data prompt some long-unwinding trade.
   •  Subdued USD price action seemed to help limit any deeper slide, at least for now.

The GBP/USD pair remained under some selling pressure through the mid-European session and is currently placed at the lower end of its daily trading range, around the 1.2930-40 region. 

After yesterday’s strong upsurge to the key 1.30 psychological mark, the highest since mid-November, the pair lost some ground and was further weighed down by the disappointing release of UK monthly retail sales data. 

With plenty of Brexit uncertainties still on the table, the dismal UK macro data prompted traders to lighten their bets, especially after a strong upsurge of over 300-pips from Tuesday’s swing lows near the 1.2670-65 region.

The downside, however, remained cushioned expectations for an extension of Article 50, despite repeated denials by the UK government, and the market stance of a diminishing hard Brexit risk. 

This coupled with a subdued US Dollar price action and absent relevant market moving economic releases from the US might further collaborate towards limiting any meaningful downfall, at least for the time being.

Technical levels to watch

Any subsequent slide is likely to find strong support near 100-day SMA, around the 1.2900 region, below which a fresh bout of technical selling might drag the pair further towards the 1.2865-55 horizontal support. 

On the flip side, the 1.2990-1.3000 region might continue to act as an immediate hurdle, which if cleared should continue boosting the pair further towards 1.3070 intermediate resistance en-route the 1.3100 handle.
 

According to Richard Franulovich, head of FX strategy at Westpac, doubts about the BoC’s commitment to further policy normalisation continue to percolate but only a very bare +12bp in BoC hikes are now priced over their next six meetings to September 2019.

Key Quotes

“Its a material decline from two months ago when rates markets discounted +70bp in BoC hikes over the same period.”

“USD/CAD has declined sharply in the new year pricing in some of the aforementioned positives but suspect it has further to run in H1, a test of key lows just below 1.28 (Oct 2018) on the cards. Recommended selling EUR/CAD earlier this week.”

Tim Riddell, senior market strategist at Westpac, suggests that in the UK, parliamentary opposition to a “no-deal” Brexit has reduced extreme downside risks for GBP

Key Quotes

“There are still a variety of potential permutations, but Parliamentary opposition to a “no-deal” Brexit has reduced that risk and also reduces extreme downside risks for GBP. Nevertheless, data are now showing the impact of uncertainty on activity. Inflation is now more benign and BoE policy should be stable until there is some form of Brexit clarity.”

“GBP is likely to be capped in the low 1.30’s with bias for a further slide into the 1.25-1.27 area until potential new plans can be fleshed out.”

After the recent market turmoil, the focus has shifted back to the China’s Q4 GDP of 2018, which is scheduled to release on coming Monday. As we get closer to the release date, here are the expectations as forecasted by the economists and researchers of major banks regarding the upcoming data.

Most of the economists and researchers are expecting that China’s GDP has cooled down to 6.3%-6.4% on yearly basis, against the previous reading of 6.5%.

TD Securities

“For Q4 GDP, activity data for Oct/Nov and Dec qtr PMIs were weak, all pointing to slower GDP. Composite manufacturing PMIs slipped to 49.9 while services PMIs were elevated at 53.3. Retail sales/IP momentum points to GDP easing from 6.5% to 6.4%/y (mkt 6.4%/y). Trade is supportive for growth as the slump in imports (-10%/q in nominal terms) outpaced the 2.5%/q fall in exports. Mkt range 6.2%-6.4%.”

ING

“The week begins with China’s 4Q18 GDP and December data on retail sales, fixed asset investment, and industrial production. The consensus estimate of 6.4% year-on-year GDP growth is barely a slowdown from 6.5% in the previous quarter despite all the hue and cry that weighed down global markets in the last quarter. However, a sharp deceleration in manufacturing and retail sales as well as in trade growth, and falling industrial profits signal a downside risk to the consensus GDP estimate. Our house forecast is 6.3%.”

Standard Chartered

“Analysts at Standard Chartered are expecting that China’s growth may have slowed in Q4 to 6.3% yoy against the previous reading of 6.5%.”

• The cross moves higher on GBP-selling, clinches the 0.88 handle.
• UK Retail Sales disappointed expectations in December.
• PM T.May starts her cross-party talks on a ‘Plan B” for Brexit.

The now selling bias around the Sterling is motivating EUR/GBP to inch higher and retake the critical 0.880 handle and above.

EUR/GBP supported near 0.8760

The European cross is now picking up extra pace on the back of the current knee-jerk in the demand for the British Pound, all in the wake of the publication of UK Retail Sales.

In fact, GBP is on the defensive today after headline Retail Sales contracted at a monthly 0.9% during the last month of 2018 and expanded 3.0% from a year earlier. Additionally, Core sales also disappointed estimates, contracting 1.3% inter-month and rising at an annualized 2.6%.

In the meantime, GBP stays in centre stage, as PM Theresa May is expected to start her cross-party talks in order to come up with an alternative Brexit plan, which will be discussed by Parliament on January 29. It is worth recalling that May’s Brexit deal was rejected by the House of Commons by a large margin, although the PM has survived the J.Corbyn-led no-confidence vote afterwards.

EUR/GBP key levels

The cross is now gaining 0.52% at 0.8815 and a break above 0.8860 (200-day SMA) would open the door to 0.8901 (55-day SMA) and then 0.8985 (high Jan.15). On the other hand, the next support is located at 0.8763 (2019 low Jan.17) seconded by 0.8723 (monthly low Oct.10 2018) and finally 0.8655 (monthly low Nov.13 2018).

James Smith, developed markets economist at ING, points out that the UK retail sales (excluding fuel) fell by 1.3% in December, while constantly evolving nature of Black Friday means getting a clear picture is difficult.

Key Quotes

“This latest decline echoes the British Retail Consortium and the Visa Spending Index, both of which pointed towards a fairly torrid time for UK high streets over Christmas. We suspect the first few months of 2019 could be equally bumpy.”

“While consumer fundamentals have improved over recent months – real wage growth is gradually rising, while the jobs market has stayed resilient – individuals are becoming increasingly nervous about the outlook for their finances and the overall economic situation.”

“Until something shifts, we’re likely to see increasing signs of businesses performing contingency actions, and there’s a possibility this gradually slips into the consumer mindset.”

• The index is extending the rebound from last week’s lows and is once again facing important resistance in the 96.20/30 band.
• This area is supported by the 21-day SMA, today at 96.15, and the 38.2% Fibo retracement of the September-December up move, at 96.22.
• DXY has so far returned to the previous multi-week 95.70-97.70 range and extra gains should now retake the 96.60/80 band, where converge the 55-day SMA and another Fibo retracement.

DXY daily chart

• The index remains sidelined just above the 96.00 mark today.
• Yields of the US 10-year note climb to fresh tops near 2.78%.
• November Industrial Production, flash January U-Mich index next on tap.

The greenback is prolonging the sideline theme just above 96.00 the figure so far this week when gauged by the US Dollar Index (DXY), all amidst the persistent decline in volatility in the global markets.

US Dollar Index looks to data

The index is up for the fourth session in a row today on the back of a moderate rebound in the demand for the buck, managing at the same time to prolong the bounce off last week’s 2019 lows in the 95.00 neighbourhood.

Declining volatility, a dovish message from ECB’s Mario Draghi and upbeat results from the Philly Fed index are all sustaining the correction higher in the buck, also aided by the lack of relevant news in the US-China trade dispute and a pick up in yields of the US 10-year note to the boundaries of 2.78%, or 3-week tops.

In the US data sphere, Industrial Production figures during November are coming up next seconded by January’s advanced Consumer Sentiment tracked by the U-Mich index.

What to look for around USD

The ongoing context of marginal volatility and lack of catalysts leaves the scenario unchanged for the greenback in the very near term. That said, the prospects of a ‘no-hike’ by the Federal Reserve this year coupled with speculations of a slowdown in the US economy remain the centre of attention among investors. In addition, the US partial shutdown is entering its fourth consecutive week and could start weighing on sentiment, while cautiousness remains high around the US-China trade talks.

US Dollar Index relevant levels

At the moment, the pair is up 0.03% at 96.10 and a break above 96.26 (high Jan.17) would target 96.60 (55-day SMA) en route to 96.96 (2019 high Jan.2). On the downside, the next support arises at 95.77 (10-day SMA) seconded by 95.03 (2019 low Jan.3) and finally 95.04 (200-day SMA).