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    GBP/USD drops as retail sales disappoint

    The GBP/USD was already lower ahead of the UK data this morning but then it accelerated its downward move after the January retail sales data was released. Despite heavy discounting after the festive period, retail sales dropped 0.3% last month, missing expectations of a smaller 0.1% decline. What’s more, sales in December were also revised lower to 0.2% from 0.4% reported initially. It looks like UK consumers took advantage of the savings made to fill up their cars to deleverage rather than go on shopping sprees. But there was some good news as government borrowing fell, boosting the ego of the Conservatives ahead of the May’s general election. In January, the public sector net borrowing was a negative £9.4 billion, down sharply from a downwardly revised £9.9bn the previous month. This helped to stem the pound’s decline.

    The GBP/USD found additional support from technical buying around 1.5350, a resistance-turned-support level. The near-term bias remains bullish above this level but things could get ugly if the low of 1.5315 from earlier in the week is taken out. In that case, the Cable could drop all the way to the next support at 1.5210 before making its next move. On the upside, the key resistance area is between 1.5490 and 1.5500. This area was formerly support and is where the 61.8% Fibonacci retracement level of the last downswing comes into play. However if the bears fail to defend that level then a much larger rally could be on the way. Meanwhile the long-term support level is at 1.5000, which can be seen on the much-larger monthly chart. The importance of this level was already covered by us in January – click HERE for details.

    Figure 1:

    Source: FOREX.com

     

    Figure 2:

    Source: FOREX.com

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