Two trades to watch: GBP/USD, USD/CAD

Finger pointing on market chart data
Fiona Cincotta
By :  ,  Market Analyst

GBP/USD falls after as retail sales fall & as political turmoil continues

The relief rally in the pound following PM Liz Truss’ resignation was short-lived. The focus is now on who will take over. Currently, ex-PM Boris Johnson and former Chancellor Rishi Sunak are early frontrunners.

Whoever takes over, the UK economic outlook is bleak amid high inflation, rising interest rates, and high energy bills. UK consumer confidence has tumbled to historic lows and retail sales slumped by more than expected, highlighting the struggles that households are experiencing amid the deepening cost of living crisis.

Retail sales fell -1.4% MoM in September after falling -1.7% in August. Forecasts had been for a -0.5% decline.

GBP/USD, which has dropped 17% so far this year, could fall further no matter who takes over, particularly in light of the roaring USD.

The USD is pushing higher, supported by more hawkish Fed commentary and rising yields. The yield on the 10-year treasury reached 4.22%, its highest level since 2008.

Where next for GBP/USD?

GBP/USD is rebounding lower from 1.1440 the weekly high. Sellers are looking for a break below the 20 sma at 1.1140, which has supported the pound across the week. A break below here opens the door to 1.10 the psychological level before bringing 1.0930, last week’s low, into play.

On the flip side, buyers will look for a move over 1.1450 the 50 sma, and the weekly high to bring 1.1735, the falling trendline resistance, and the September high into target.

 

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USD/CAD rises ahead of Canadian retail sales

USD/CAD rose 0.1% yesterday after briefly falling below 1.37. Rising US bond yields following hawkish Fed commentary and signs of resilience in the US jobs market.

Oil prices briefly pushed higher yesterday on optimism that China could ease some COVID quarantine restrictions for visitors to the country. However, the price oared those gains later in the day. Today oil is holding steady, exerting little influence on the loonie.

Looking ahead, Canadian retail sales are due to rise 0.2% MoM in August after falling -2.5% in July as the high-interest rates affect shopping habits.

The BoC is due to meet next week and is expected to hike interest rates by 50 basis points.

Where next for USD/CAD?

USD/CAD is being supported by the 20 sma at 1.3710. The pair has broadly traded above the 20 sma since late August. A break below here could see the price test support at 1.3650, the weekly low. Should sellers successfully take out this level, then the October low of 1.35 could come into target.

Meanwhile, should the 20 sma hold buyers, supported by the bullish RSI could look to rise above 1.3850 the September high. Above here the pair could attempt a break above 1.39 to bring 1.3980 the 2022 high into play.

 

 

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Related tags: Trade Ideas USD CAD GBP/USD

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