Pound stretches gains on upbeat retail sales data, runs into key near-term resistance levels
Cable runs into a test of the 100-hour moving average
The pound is moving towards a key challenge right now as we see GBP/USD hit a high of 1.2484 after the retail sales report earlier beat expectations handily. The details were mixed but the headline is keeping the quid upbeat for the time being.
GBP/USD is now testing near-term resistance in the form of the 50.0 retracement level @ 1.2482 as well as the 100-hour MA (red line) @ 1.2484. The latter is a key area for sellers to defend the more bearish near-term bias.
Further resistance is then seen at the 200-hour MA (blue line) @ 1.2495 and offers lurk nearby around 1.2500. Those will also be key levels to watch out for today given the price action we're seeing currently.
The stronger-than-expected data earlier is great on paper but does little to shift the dial with regards to the BOE and Brexit sentiment. The UK economy is still likely headed for a mild contraction in Q2 and this doesn't change that rhetoric.
As such, we can only turn back to sentiment and positioning at the end of the day. The former still suggests trouble for the pound but the latter suggests that shorts are looking a bit stretched so the positive headlines today may generate some further squeeze back to the upside; though now that we've approached key resistance levels, let's see who (sellers or buyers) has more conviction in taking charge from here.
Also, keep an eye out on EUR/GBP as price closes back in on the 0.9000 handle. That will also be a tell on pound sentiment over the next few sessions. If price slips back below that, it could point to signs of exhaustion in pound selling over the past few weeks.