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GBP/USD falls on USD strength & despite UK retail sales rising. DAX falls as Fed jitters hit risk sentiment.
 

GBP/USD falls on USD strength & despite UK retail sales rising

• GBP/USD falls on hawkish Fed chatter
• UK retail sales unexpectedly rise
• GBP/USD tests 200 sma

GBP/USD is falling for a third straight session and has tumbled below the key 1.20 psychological level. The pair is set to lose 1% across the week.

The USD is pushing higher across the board after hawkish comments from fed speakers in the previous session. Fed President Loretta Mester and James Bullard both see the case for more rate hikes and possibly returning to larger rate hikes to lock in disinflation.

Suddenly a terminal rate of 6% from the Fed is looking much more plausible than it was at the start of the week.

The strong dollar overshadowed encouraging news and data from the UK. UK retail sales unexpectedly rose 0.5%, after falling 1% in December, defying expectations of a 0.3% decline as January discounting brought shoppers out.

The data suggests that the UK consumer is holding up better than expected in the face of the cost-of-living crisis and will raise questions over the BoE’s ability to pause rate hikes.

On the Brexit front, PM Rishi Sunak is in Northern Ireland amid optimism that new trade terms surrounding the Northern Ireland protocol could be agreed upon soon.

Looking ahead, there is no further UK economic data. Instead, more Federal Reserve speakers will be in focus.
 

Where next for GBP/USD?

Failure to hold above the 100 sma combined with the RSI below 50 keeps sellers hopeful of further downsides as GBP/USD extends losses, testing the 200 sma at 1.1940. A break below here brings 1.1840, the 2023 low into play and 1.1750, the July low.

On the flipside, buyers could look for a rise over 1.2140, the 100 sma to extend gains to 1.2270, the weekly high. A rise above here creates a higher high.

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DAX falls as Fed jitters hit risk sentiment

• Fed speaks hits sentient
• German PPI 17.8% above 16.4% forecast
• DAX remains in rising channel for now

The DAX, along with its European peers, or set to start lower following losses on Wall Street. More hawkish signals from Federal Reserve speakers boosted fears that interest rates will keep on rising. The risk-off mood spread to Asia and is hitting sentiment on the open in Europe.

Keeping inflation and rate hikes in focus, in a speech ECB policymaker Schnabel highlighted the risk of the market underestimating inflation and said that a 50-basis point rate hike in March is needed under virtually all scenarios.

On the data front German PPI cooled faster expected to 17.8% year on year, down from 21.6% in December but above the 16.4% level forecast.
 

Where next for the DAX?

The Run higher in the DAX is showing signs of exhaustion, with the price falling sharply lower, although, for now, it remains within the rising channel dating back six weeks.

Sellers would look for a fall out of the channel at 15330 to test 15245 the weekly low. A break below here brings 15000 the psychological level into play.

Should buyers successfully defend the rising trend line then a rise towards 15400 the weekly high could be on the cards, with a rise above here opening the door to 15650, the 2023 high and 15750 the February ’22 high.

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