The GBP/USD pair fell to 1.5433 levels on Friday, but still managed to end strengthen for the second consecutive week. The spot ran into offers at its 100-DMA as the USD made a comeback ahead of the weekend. The turn lower from the 100-DMA also marked a third straight failure to take out the falling trend line resistance on the daily chart.
USD demand could remain intact
The end-of-the-week USD demand seen on Friday could remain intact today. China reported GDP slightly better than estimates, although the number did dip to 6.9% from the previous figure of 7.0%. Industrial production also contracted, but, retail sales ticked higher. The rise in the retail sales is slightly positive (indicates a recovery in domestic demand). Furthermore, a slower-than-expected drop in GDP could also mean fears of a sharp slowdown are overdone. However, there is little scope for China led risk-on as industrial production dropped sharply. Nevertheless, the USD demand could remain on a positive footing as the 10-year treasury yield has ticked higher after China data. The yield now trades around 2.039%.
Technicals – Bearish below 1.5436
Sterling’s failure to take out its 100-DMA and the falling trend line resistance on the daily chart on Friday, is likely to push the pair below 1.5436 (23.6% of last week’s rally). A break below 1.5436 would open doors for 50-DMA at 1.54 and 1.5387 (Oct 13 high). On the other hand, a rebound from 50-DMA could see the pair re-test the falling trend line resistance at 1.5466 levels. Only a daily close above 1.5466 today would add to the bullish momentum in the pair. Meanwhile, a daily close below 1.5387 could mean the down trend from the August high of 1.5819 has resumed.
EUR/USD Analysis: Eyes trendline support, focus on yield spread
The EUR/USD pair fell on Friday, leading to a weekly loss as increasing expectations of more monetary easing from the European Central Bank scared investors out of the EUR long positions. The spot fell to a low of 1.1334, before recovering slightly to 1.1347 levels. Meanwhile, Thursday’s upbeat US CPI and weekly jobless claims also added slightly ot USD’s recovery.
10-year yield spread back in focus
The Euroland economic calendar is empty today. Hence, the focus would be on the benchmark 10-year US-German bond yield spread. Expectations that the ECB would hint at a further cut in the deposit rate and/or increase in size of the QE is pushing the German yields lower. The 10-yr German bund yield dropped ten basis points last week, while its US counterpart recovered to trade above 2%.
As of writing, the spread was 148 basis points. Heading into the Thursday’s event, the spread could rise, leading to weakness in the EUR/USD pair.
Technicals – Eyes 1.1315
Euro’s rejection at 1.15, followed by a weak closing on the weekly charts, indicates the spot is likely to test the support at 1.1315 (red trend line on the chart). A daily close below 1.1315 would open doors for a drop to 1.1240-1.1250 (blue rising trend line). On the other hand, a drop to 1.1315, followed by a rise back above weekly 50-MA at 1.1331 could open doors for a re-test of 1.14-1.1420 levels.