Photo by Colin Watts on Unsplash 
 

Quiet Start in FX

We’re seeing a relatively muted start to the week with US markets offline today due to the MLK holiday in the States. The US Dollar remains in the green on Monday, despite light flows, though there appears to have been little impact from last week’s stronger-than-forecast December US CPI reading. Headline inflation was seen rising above forecasts last month. However, the data has failed to derail Fed rate cut expectations with the market still assigning a roughly 70% probability of a rate cut in March.
 

US Retail Sales Due Wednesday

Looking ahead this week, US retail sales on Wednesday will be the key data to watch states-side, along with a slew of Fed commentary across the week. Given the dovish expectations currently baked into the market, it would likely take a strong upside beat on Wednesday to cause any shift in the USD landscape.
 

UK CPI Due Wednesday

Away from the US, the focus will also be on the latest UK CPI reading due on Wednesday with UK labor market data ahead of that on Tuesday. The data, particularly inflation, will be closely watched ahead of the BOE meeting on Feb 1st. With the bank sticking to its hawkish signaling last time around, traders will be keen to see if CPI fell again last month or if there was any uptick, as we saw in the US. If any stickiness or fresh strength is seen, this could well fuel a GBPUSD rally this week.
 

Technical Views

GBPUSD

(Click on image to enlarge)

The rally in GBPUSD has stalled recently into the 1.2832 level. So far, the correction lower has been underpinned by the 1.2659 level and the bull channel lows, marking a clear range for the pair. The focus stays on the upside for now, in light of the bull trend. However, with a bearish divergence in momentum studies, traders should be wary of downside risks should we slip below 1.2659. 

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