As we approach the end of an eventful week, things are starting to unwind and the economic calendar is beginning to look empty. The only notable market-moving data left for this week are retail sales from New Zealand (tonight) and Britain (tomorrow). Consequently, the GBP/NZD will be in focus. This volatile pair rallied sharply last week when the RBNZ signalled it won’t be cutting interest rates for a long time. But soft UK inflation and wages data has weighed on this pair this week, causing it to remain within its established range. Will the retail sales data from the two nations cause it to make a more decisive move at the end of this week? Time will tell. But the headline New Zealand retail sales are expected to come in at 1.1% quarter-on-quarter in Q4 versus 0.9% in Q3. Core sales are seen rising 0.9% on the quarter compared to 0.3% previously. Meanwhile UK retail sales are seen rebounding 1.0% in January after an unexpected 1.9% drop in December.
From a technical perspective, the long-term bias remains finely in balance for the GBP/NZD. But we have seen a few bullish signs of late, not least that big bullish engulfing candle on February 7, which preceded the rally to the 1.7450-85 resistance area last week. What’s more, there is also a bullish engulfing candle on the weekly time frame, too (see the inset). But because of the slightly weaker UK data this week, the buyers have not exerted further buying pressure on this pair, so there hasn’t been any follow-through. It could be that this group of market participants are waiting for a deeper pullback to go long again, or perhaps a break above the resistance range. One key support level to watch is around 1.7125, which was the last short-term resistance prior to last week’s rally. Once resistance, this level could be the new support to watch. If price does not get to this level before it takes off to move above the 1.7450-85 range, then the bulls who are currently on the side-lines may consider trading the breakout. However, if the low from last week gives way then this will invalidate our short-term bullish view.