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GBP/USD - Assessing the Reaction to UK Retail Sales

Yesterday, I was looking at GBP/USD to consolidate further and maybe lower.

(GBP/USD daily chart: click for full size)

The daily chart shows that the Stochastic is near the 20 level. But price did not fall to where I would have preferred.

S20-R40

Also, if you have been following my posts, you know that I also look for the RSI to be near 40. The daily chart shows this S20-R40 situation a few times during the rally that began in July 2013.

This suggests there are still some downside risk, so its not compelling to buy when looking at it from the daily chart.

UK Retail Sales Reaction

On the 1H chart, we might find some a reaction to UK data as a sign of exhaustion.

First of all, the 1H chart shows a choppy downwards consolidation during the week.

There was a spike to the downside during the UK session when poor retail sales data was released. This could be a sign of exhaustion to the downside. However, we might need some more bullish price action to convince the market this week's consolidation is broken.

Flag Breakout?

If price can rally above 1.67 and the RSI can be pulled above 60, the bearish pattern this week will be broken. This could be the first step in a bullish continuation. Some would call this a flag pattern breakout.