GBP/USD Falls Sharply Lower Ahead of US Retail Sales as the Dollar Dominates the Majors

GBP/USD briefly rose to a fresh one-month high yesterday but has given back the gain in early trading today, ahead of the US retail sales report.

The pair has been weighed by a strong dollar as the greenback has gained against all of its major counterparts. The trade-weighted dollar index was last seen trading at 99.55, wiping out losses from the early week and showing a small gain.

It remains to be seen whether the greenback can hold on to its early day gains. Investors are bracing for today’s US retail sales report which is expected to show a staggering 8% decline in sales for March.

The report will be the first in a series of reports that will shine a light on how badly the economy performed last month as a result of the Coronavirus.

Weekly US jobless claims figures have already hinted that the labor market has deteriorated rapidly as the past few reports have shown claims several multiples higher than ever seen before.

Technical Analysis

The break above recent highs yesterday likely drew buyers. With the pair currently falling back towards the breakout point ahead of the US retail sales report, there is some downside risk.

GBP/USD bulls might look to cover their positions ahead of the report as the volatility that it accompanies it can vary a great degree. After all, such a sharp one-month decline in sales is unprecedented.

This could keep pressure on the pair ahead of the report. The reaction once the report is released stands to set the tone for GBP/USD.

A weak dollar reaction will tend to reignite the already bullish trend for GBP/USD. In such a scenario, Sterling stands to outperform some of its major counterparts.

On the other hand, if the dollar extends higher following the report, GBP/USD will invalidate the bullish signal from yesterday after it broke above recent highs. This stands to trigger stops from recent bullish positioning and opens up the potential for a downside move.

Bottom Line

• GBP/USD trades at a critical inflection point ahead of the US retail sales report.
• The dollar is dominating the majors and the reaction from the retail sales report stands to set the tone for the remainder of the week.