Markets are starting the European session on the back of solid gains from the US and Asia overnight. The rally was fuelled late in the US session by a report that the US was contemplating lifting tariffs on China in an attempt to break the stalemate in trade negotiations. The report said that Treasury Secretary Mnuchin was in favour of lifting tariffs, but Trade Representative Lightizer was not. Risk sentiment improved as a direct result. The markets had feared weakened global economic growth because of the trade tariffs between the countries. However the report was denied by the US Treasury, who said they had not made any recommendations on tariffs. Market stuck with the initial headline and maintained the risk on theme in the European open.
The economic calendar for today has the UK Retail Sales data release this morning expected to fall to -0.8% from 1.4% previously. In the afternoon Canadian CPI data is expected to match the previous reading of -0.4%.
The GBPUSD pair has tested the 1.3000 level as resistance and is now pulling back, with the price currently at 1.2964. Support at 1.2925 and the 1.2900 is being supported by the falling trend line, which was broken yesterday. A break back under this line may push price to the 1.2800 support area which had been used as resistance in the past. This is followed by the 1.2700 level and the more resilient 1.2664 level. Any potential break under this latter level might result in a test on 1.2500 and the low at 1.2436.
For buyers to take price higher, they may need to secure a retest on support in order to break 1.3000. This level is a round number and as such should attract sellers to defend the level. A break higher shifts the focus up towards the 1.3088 area followed by 1.3100. Buyer may wish to test these levels and follow through with a move to 1.3175. This level was the November high and a move beyond this point might results in retests of the October high at 1.3258 and the September high at 1.3298.
The USDCAD pair has sold off since the New Year from the 1.3665 area and is now consolidating around 1.3250. The low of the pullback reached 1.3181 and this is potentially the level that traders may use as support going forward. The rising trend line was broken ending the last leg of the move higher at 1.3350. Further support may found around the 1.3100 area followed by the 1.3000 level. A loss of this support may result in a dip to 1.2900/1.2882 where support and resistance has formed in the past. The low at 1.2782 might be test on a fall under 1.2800.
Resistance around the 1.3317/1.3300 may provide buyers with an area to try to break out from and potentially squeeze short positions in an attempt to gain ground. Any potential move higher initially targets 1.3400 and may even try to extend up to 1.3444. Reaching this level may require price to engage with the rising trend line, around 1.3410 today. Further drives higher open the way for possible tests towards 1.3500 followed by the 1.3566 area. The 1.3600 level was tested on the last move higher with the rally ending on a clear line of resistance at 1.3665.
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