The Strange Case of GBP/USD Buying; British Pound Exchange Rate Coverage on 21/02

British pound vs EUR:

1.2029

British pound vs USD:

1.2527

British pound vs AUD:

1.9305

British pound vs CAD:

1.7544

British pound vs NZD:

2.1471

British pound vs ZAR:

22.6577

A summary of what we can expect next week, courtesy of UniCredit:

"The very weak preliminary manufacturing PMI reading for China will likely keep financial markets in a restrained mode regarding risk-taking, at least until the release of the next US ISM index.

"Hence, the JPY and the CHF are expected to be the major beneficiaries on FX markets in the very short term, while the AUD and the NZD should prove to be the main casualties. We expect the EUR to be on the strong side most of the week, the GBP to trade sideways and the USD to remain relatively weak, but not much weaker, as markets will most likely avoid taking any strong directional views ahead of the important releases of US ISM and the US employment report."

We have witnessed some selling pressure over the course of the past hour that has essentially seen any of today's gains in the main pairs evaporate.

Shaun Osborne has reiterated his call that the GBP/CAD will likely hit 1.92:

"GBPCAD has traded through 1.8550/55 resistance — the series of highs that held the market in check through late January — and appears poised to close out a positive week at or close to the highest levels seen since 2009.

"We remain bullish on the outlook here (our long-held target is 1.92) and we are en couraged by developments in the past couple of weeks—GBPCAD has seen solid support on modest dips and strong underlying trend momentum is evident across a range of timeframes, which will limit scope for corrective weakness from here."

Jean-Pierre Dore at Western Union says analysts will be watching today's market close very closely:

"Sterling is pushing higher late into the London close, despite a weak U.K. retail sales number that showed a 1.5 percent month-over-month drop. The GBP is again trying to close the week above the 1.6700 level, after falling to a low of 1.6620 following the release.

"The pound is still favoured against the USD by the market right now, which is watching the London close today very closely—a 1.6700 or higher close would put in a short-term floor on the pair following a tumultuous week."

Scotiabank have told clients this February that they are upgrading their outlook for the GBP:

"We have revised higher our British pound (GBP) outlook on the back of an expected interest rate hike in the first quarter of 2015 and improved investor sentiment; however, we caution that the currency is already priced to perfection and accordingly upside is likely to prove temporary. We expect GBPUSD to close the year at 1.64."

This summary courtesy of Sean Lee at ForexTell:

GBP/USD, Goldman are long looking for test of 1.69/1.70 region with support now seen at 1.6640 and 1.6580.

USD/JPY: Happy to range trade between 101.40/102.90 but expecting an eventual break higher;

EUR/USD: Range-bound between 1.35/1.38 with small shorts in play from near range tops;

AUD/USD: They remain bearish and expect a larger move lower but support .8925/40 staying strong for now;

USD/CAD: They remain bullish and see a 1.1030/1.1225 range evolving though care is warranted when data released later.

"GBPUSD has made a strong comeback after the initial sell-off after the disappointing UK data. But we expect a more sustained upside bias to emerge on an intraday basis if the spot manages to break through the 1.6700 resistance area. This would also be in line with, and supported by, the overall technical bullish bias that prevails in the cross." - Kristian Siggaard-Jensen.

"GBP/USD has broken the key resistance at 1.6668 (24/01/2014 high). As long as the support at 1.6600 (see also the rising trendline) holds, a further phase of strength is favoured. Hourly resistances stand at 1.6742 and 1.6823. Another support lies at 1.6426.

"In the longer term, the technical structure favours a bullish bias as long as the support at 1.6220 (17/12/2013 low) holds. The decisive break of the resistance at 1.6668 opens the way for a move towards the major resistance at 1.7043 (05/08/2009 high). However, a sustainable move above that level is unlikely in the next few weeks."

"Any setback will be viewed as corrective and limited to support at 1.6605. Resistance is at 1.6742, a break above this would open 1.6878." - UBS.

Luc Luyet at MIG Bank gives his verdict on the euro/sterling rate:

"EUR/GBP's bounce continues to lose momentum near the resistance at 0.8254 (50% retracement). Monitor the hourly support at 0.8217 (intraday low). Another hourly support lies at 0.8191 (18/02/2014 low), whereas another resistance stands at 0.8280 (06/02/2014 low).

"In the longer term, the technical structure remains negative as long as prices remain below the resistance at 0.8350 (13/01/2014 high). Monitor the support implied by the 61.8% retracement (of the 2012-2013 rise) at 0.8160. Another key support can be found at 0.8082 (01/01/2013 low).

Ipek Ozkardeskaya at Swissquote Bank comments on the curious buying action seen in GBP/USD today:

"GBPUSD sold-off to 1.6613 on faster-than-expected contraction in retail sales in January. The aggressive buybacks post-data gathered curiosity. In fact, the Cable is squeezed by unsupportive macro news this week. Remember, the CPI y/y fell to 1.9%, below BoE’s 2.0% target, while the unemployment increased from 7.1% to 7.2% in December reading.

"The rapidity of recovery states that traders still see buying interest in GBPUSD, despite the lower-low-lower-highs trends building since February 17th. Trend and momentum indicators remain bullish, yet a close below 1.6668 should favor the short positions from next week."

Barclays have warned that those hoping for a GBP/USD rally on the Vodafone/Verizon deal could well be disappointed. In fact, analyst Chris Walker has taken the opportunity to advise on a sterling short position.

Remember today we are to get a strong amount of flow demand for GBP/USD as the Vodafone/Verizon deal concludes with billions crossing the Atlantic. Traders may have used the initial decline in GBP/USD to pick up cheap currency.

While retail sales disappointed it would seem markets have opted to pick up on the good news concerning the public sector finances. UK Public Sector Net Borrowing was down to £-6.425B in January from £9.028B previously. Markets had however expected more of a surplus at 9BN. So this would not fully explain the buying.

Despite today's miss, the UK currency is holding steady. Indeed, the GBP/USD has spiked higher. "GBPUSD whipsaws post the mixed UK data. It is still managing to hold comfortably above 1.66 (38.2% Fib) for now." - Forex.com.

Retail Sales (YoY) (Jan): 4.3%, predicted: 5.0%, last month: 5.3%

Retail Sales ex-Fuel (YoY) (Jan): 4.8%, predicted: 5.0%, last month: 6.1%

Public Sector Net Borrowing (Jan): £-6.425B, far less than the £-9.000B predicted and last month's +£9.028B

We have already offered a positive perspective on GBP today, now it is the turn of UniCredit to offer a softer stance:

"Falling retail sales, although better than consensus, are again seen penalising sterling today. Accordingly, cable may further slip to the edge of 1.66, while EUR-GBP has a new chance of climbing back to 0.8250 and above."

More from Lien, this time on the difficulty that Sterling (GBP) will face in trying to advance further:

"We continue to believe that sterling could head higher especially after hawkish comments from Bank of England monetary policy member Weale. He said interest rates could rise next spring, sooner than the central bank's current projections. The only tricky part of buying sterling is positioning. According to the latest CFTC IMM report, speculators already hold a significant amount of long GBP/USD positions and this means unambiguously positive data may be needed to encourage fresh longs in the pair."

Today we have retail sales data out at 09:30 set to drive the pound sterling exchange rate complex. Analyst Kathy Lien at BK Asset Management tells us that we could be in for a pro-GBP positive surprise:

"We have a number of reasons to believe that tomorrow's retail sales report could surprise to the upside. Earlier this month, the British Retail Consortium reported the strongest increase in consumer demand in more than 2.5 years.

"The BRC retail sales monitor rose a whopping 3.9% in January, which compares to a 0.4% increase the previous month. Despite the rise in the unemployment rate, jobless claims dropped more than expected last month while average weekly earnings increased at a faster pace - both of which have positive implications for consumer demand. Consumer confidence also improved significantly, rounding out our reasons for expecting an upside surprise in retail sales on Friday."

Highlight's of Thursday's live coverage:

For the British pound (GBP) pay increase pressures will matter

GBP/USD must break 1.6742 to reassert uptrend

A new equilibrium for sterling

UK interest rise in Spring 2015