Cable at 15 Yr High, Markets Unimpressed by Strong US Retail Sales

Markets seem not to be impressed by stronger than expected retail sales data from
the US.  The dollar continues to hover near today’s low except against yen which remains pressured after G7 meeting. Headline retails sales jumped 0.7% m-o-m in
March, with ex-auto sales rising 0.8%, beating expectation of 0.4%, 0.6% respectively. Prior figures was also revised impressively up from 01.% and -0.1% to 0.5% and 0.4%. However, empire state manufacturing index rose mildly from 1.9 to 3.8 only in Apr while TICs capital flow unexpectedly fell to $58.1b in Feb.

Earlier today, Sterling surged to new 15 years high against dollar after stronger than expected PPI inflation report that suggests pipeline price pressures in UK are on the rebound. PPI input jumped 1.2% m-o-m, pushing y-o-y rate back to positive region from -1.2% to 0.7%. PPI output rose 0.6% mom, pushing yoy rate to 2.7%, which was the highest since Aug 06. Core PPI also beat expectation by rising 0.4% mom, 2.9% yoy, which is highest since Jun 06. One more rate hike in Q2, likely in May, is already priced in by the market. There were already some speculations that BoE will go beyond May. Today’s strong PPI inflation, coupled with strong numbers in CPI and retails sales later this week will further increase the likelihood that BoE will have at least two more hikes.

In eurozone, March HICP final release was revised higher to 1.9% yoy while German CPI was revised to 1.9% yoy, HICP revised higher to 2.0%.


Daily Pivots: (S1) 1.9801; (P) 1.9843; (R1) 1.9904;


Cable rises strongly to as high as 1.9940, breaking mentioned 1.9913 high as expected. At this point, further rise is still expected to follow as long as cable stays above 1.9861 minor support. Next upside target will be 61.8% projection of 1.8517 to 1.9913 from 1.9183 at 2.0046. Below 1.9861 will suggest a short term top is possibly formed and bring pull back to 1.9781 spike low again but downside is expected to be contained by 1.9723 support and bring rally resumption.

In the bigger picture, rise from 1.8090 is interpreted as having first wave finished at 1.9142, subsequent second wave correction completed at 1.8517. Third wave rally has completed at 1.9913 while the fourth wave correction has already ended with three subwaves down to 1.9183. Current rise from 1.9183 will likely be the final advance of this rise from 1.8090. The channeling property of the terminal points of 1.9142, 1.8517, 1.9913 and 1.9183 is supporting this case.

Having said that, resistance should significantly increase as cable approaches 61.8% projection of 1.8517 to 1.9913 from 1.9183 at 2.0046. Also, consider that cable will be near to resistance zone of 2.0106 (92 high) and 100% projection of 17047 to 1.9024 from 1.8090 at 2.0067. With bearish divergence on condition still being displayed in weekly RSI as well as daily MACD, risk of medium term reversal will significantly increase. Hence, focus will be on reversal signal as cable approaches this zone.

On the downside break of 1.9591 support will indicate that the rise from 1.9183 has completed. More importantly, this will be the warning of an early completion of the whole rise from 1.8090. Focus will then be on above mentioned channel support (now at 1.9353).

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Shing-Ip Tsui is the founder and CEO of ActionForex is set up with the aim to empower individual forex traders by providing insightful contents. Analysis reports, live pivot points on majors and crosses, etc are provided with collection of carefully selected educational articles and free trading ebook downloads.