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GBP Rebound from Key Support to Gather Pace on U.K. Retail Sales

By , Currency Analyst  and Gregory Marks
17 January 2014 05:00 GMT

- U.K. Retail Sales to Increase for Second Straight Month

- Household Spending Has Risen Six Times in 2013

Trading the News: U.K. Retail Sales

Household spending in the U.K. is expected to increase another 0.3% during the month of December, and a positive print may push the GBPUSD back towards the 1.6600 handle as the stronger recovery raises the Bank of England’s (BoE) scope to normalize monetary policy ahead of schedule.

What’s Expected:

Time of release: 01/17/2013 9:30 GMT, 4:30 EST

Primary Pair Impact: GBPUSD

Expected: 0.3%

Previous: 0.4%

DailyFX Forecast: 0.3% to 0.4%

Why Is This Event Important:

A pickup in private consumption may encourage BoE Governor Mark Carney to adopt a more hawkish tone for monetary policy, and the central bank may show a greater willingness to lift the benchmark interest rate later this year amid the growing threat for a housing bubble.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Price Index (YoY) (DEC)

2.1%

2.0%

Gross Domestic Product (YoY) (3Q F)

0.8%

0.8%

Jobless Claims Change (NOV)

-35.0K

-36.7K

Easing price pressures along with the ongoing improvement in the labor market may pave the way for a strong retail sales print, and a better-than-expected result should prop up the British Pound as it raises the outlook for growth.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

BRC Sales Like-for-Like (YoY) (DEC)

0.8%

0.4%

Net Consumer Credit (NOV)

0.7B

0.6B

GfK Consumer Confidence (DEC)

-11

-13

However, the weakness in household confidence paired with the recent slowdown in consumer credit may drag on spending, and a dismal development may trigger a larger correction in the sterling as market participants with the prospects for monetary policy.

Potential Price Targets For The Release

GBPUSD Daily

Forex_GBP_Rebound_from_Key_Support_to_Gather_Pace_on_U.K._Retail_Sales_body_Picture_2.png, GBP Rebound from Key Support to Gather Pace on U.K. Retail Sales

Chart - Created Using FXCM Marketscope 2.0

  • Continues to Hold Key Support; RSI Retains Bullish Trend from
  • Interim Resistance: 1.6550 (78.6 expansion) to 1.6600 Pivot
  • Interim Support: 1.6300 Pivot to 1.6310 (50.0 expansion)

How To Trade This Event Risk(Video)

Bullish GBP Trade: Retail Sales Climbs 0.3% or Greater

  • Need green, five-minute candle following the statement to favor a long GBP trade
  • If reaction favors buying British Pound, long GBPUSD with two separate position
  • Set stop at the near-by swing low/reasonable distance from entry; need at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is hit, set reasonable limit

Bearish GBP Trade: Household Spending Disappoints

  • Need red, five-minute candle to consider a short GBPUSD trade
  • Implement same setup as the bullish British Pound trade, just in the opposite direction

Impact that the U.K. Retail Sales report has had on GBP during the last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

NOV 2013

12/19/2013 9:30 GMT

0.3%

0.4%

-16.5

-18

November 2013 U.K. Retail Sales

Forex_GBP_Rebound_from_Key_Support_to_Gather_Pace_on_U.K._Retail_Sales_body_Picture_1.png, GBP Rebound from Key Support to Gather Pace on U.K. Retail Sales

Retail Sales out of the U.K. for November saw a slightly better than expected print of 0.4% as cold weather boosted demand for clothing in the retail sector. Despite the headline figure, figures for ex. and incl. auto were revised lower for October and November’s print for YoY incl. automobiles came in at 2.0% vs. 2.2% expected. The GBP/USD pair saw a slight move to the downside, but closed down just 18 pips below where it was prior to the release. Although the Pound has come under pressure as of late on weaker than expected CPI data in December, market participants will be looking for Retail Sales data that supports the general consensus of a strengthening U.K. economy. Insight into the key holiday shopping season may impact GBP crosses more than last month’s relatively muted response.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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17 January 2014 05:00 GMT