Today’s trading session started off on an optimistic note for pound bulls. GBPUSD had rallied over 100 pips from yesterday’s low under 1.5900, which happened to mark a potentially key long-term support level at the widely-watched 61.8% Fibonacci retracement of entire 2009-2014 rally. In addition the bullish technical setup, the pair was also getting some support from the fundamentals: the UK’s January trade balance came out better-than-expected at just a GBP 8.4B deficit, while US retail sales were shockingly abysmal at -0.6% vs. an expected gain of 0.3% (though initial jobless claims did provide a bit of a silver lining by falling to 289k).
Unfortunately for GBPUSD bulls, the pair simply could not hold onto its overnight gains, despite the seemingly supportive technical and fundamental backdrop. When a currency pair fails to act as it’s “supposed to” by rallying on bullish fundamentals, it’s often a reliable sign that its heading much lower. That perspective has gained further credence now that rates have broken below the late January low at 1.4950 to a new 20-month low under 1.4900.
From a longer-term view, the failed breakout above the shallow 23.6% Fibonacci retracement at 1.5480 two weeks ago is particularly concerning, as it shows bulls weren’t even able to recover a quarter of the big selloff from above 1.70 before relinquishing control of the market back to the sellers. Meanwhile, the MACD indicator is trending lower beneath both its signal line and the “0” level, showing strongly bearish momentum, though the RSI indicator is peeking into oversold territory.
With Cable hitting new low, the path of least resistance remains to the downside, and previous support at 1.4950 may now provide resistance on any short-term bounces. To the downside, bears could look to target the 5-year low at 1.4812 next, followed by the 127.2% and 161.8% Fibonacci extensions of the Jan-Feb bounce at 1.4785 and 1.4575.
As a final note, traders should keep a close eye out of the rhetoric coming out of the BOE in the coming days. An underappreciated factor driving the pound lower has been the subtle shift away from hinting at rate hikes next year, highlighted by the normally-hawkish MPC member Martin Weale’s comments that the recent fall in oil prices has provided “breathing space” before the central bank needs to hike rates.