Sterling bears entered the scene on Friday after British retail sales tumbled sharply in December
UK retail sales slumped -1.5% in December as the unsavory combination of rising inflation and tepid wage growth sapped consumers’ spending power. With wage growth consistently lagging behind inflation and putting the squeeze on household incomes, concerns are likely to heighten the sustainability of Britain’s consumer-driven economic growth.
It is becoming clear that sterling’s appreciation this month had nothing to do with a change of sentiment towards the UK economy but rather ongoing dollar weakness and market optimism over a soft Brexit. With political conflict at home still a recurrent theme, and weak economic fundamentals eroding investor appetite for Sterling, the pound/U.S. dollar (GBP/USD) currency pair’s upside potential could be limited.
From a technical standpoint, the GBP/USD continues to follow a bullish trend on the daily charts. The breakout above 1.3850, could pave a way higher back towards 1.3920 and 1.4000, respectively. Alternatively, a breakdown below 1.3850, has the ability to trigger a decline back to 1.3700.
Dollar sulks near three year low
The dollar was pummelled and pounded by investors on Friday thanks to growing fears of a possible U.S. government shutdown. Sentiment remains bearish towards the dollar with further downside on the cards, as political uncertainty in the United States weighs heavily on the currency.
From a technical standpoint, the Dollar Index is heavily bearish on the daily charts. There have been consistently lower lows and lower highs while prices trade comfortably below the 50 Simple Moving Average. The 91.00 has acted as a minor resistance this week with some support found around 90.30. An intraday breakdown below 90.30 could invite a decline towards 90.00.
Commodity spotlight – gold
Gold found support on Friday in the form of dollar weakness and market anxiety over a potential U.S. government shutdown. With the dollar struggling to gain ground and at the mercy of political uncertainty in Washington, the yellow metal is likely to remain buoyed.
Taking a look at the technical picture, gold continues to fulfill the prerequisites of a bullish trend as there have been consistently higher highs and higher lows. There is a possibility that a new higher low has been created at $1324.15 and as such could provide a foundation for bulls to elevate prices back towards $1340. A decisive breakout and weekly close above $1340 could pave a path towards $1360.