This morning we learn that the expected decline in UK retail sales is actually worse than the market predicted, as sales month on month for January came in -8.2%. The lockdown is having a much more detrimental effect on the retailers, but the silver lining is that the decline in this lockdown has so far not been to the magnitude of the first lockdown in April of last year. In contrast, the Chinese data around public consumption showed that Chinese major retailers and restaurants had a 29% jump on last year’s holiday period which was mainly canceled due to the beginning of the coronavirus outbreak.
The GBPUSD on the H1 time frame is trading within a rising channel, and currently, the momentum indicator is showing that the Bullish move is more likely to continue. Rising channels generally break to the downside but for this to happen today we would need to see either the EURGBP move a lot higher or the US dollar to reverse near-term price action and go bullish.
US stimulus talks look likely to come to a conclusion next week as House Speaker Pelosi said they will vote on the $1.9trlb stimulus bill, while US Treasury Secretary Yellen sees the “benefits of stimulus” outweighing the costs and that she wants to make sure the cheques are appropriately targeted. The infrastructure package that is also being proposed later this year will likely be paid for with additional tax increases and that she sees the US returning to full employment by 2022.
At the start of the London session, we are expecting Flash PMI data for European countries to show a slight downturn from their previous readings so an unexpected, good data release especially out of Germany, could see the euro trade higher. The EURUSD is making some gains in early European session trading and the trader sentiment indicator on the ActivTrader platform is showing that 65% of traders are bearish the currency pair. There is a range high that could be a target for the bulls around 1.21900 assuming that the support from 1.2000 holds.
The EURGBP remains below the major inflection level of 0.8670, so this morning’s data could be the catalyst for a move down toward the next major support level of 0.8280 or if it beats expectations the boost needed to get back into the recent major trading range between 0.8700 and 0.9300. The trader’s sentiment indicator is at an extreme bullish level of 87% which is a contrarian’s signal to go short. An even more contrarian signal is coming from the GBPCAD which shows that 93% of traders are bearish the pair as it looks likely to test the extremes of the 4-year range since the summer of 2016. The weekly price action has been very bullish with only small consolidation zones and large impulsive moves higher, showing the bulls are very much in control.