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Declining U.K. Retail Sales Conflict With Bullish Pound Technical Outlook

Thursday, 23 October 2008 04:37:51 GMT  |  John Rivera, Currency Analyst

U.K. retail sales is expected to have declined by 0.7% as the credit crisis and a looming recession has caused consumers to curb spending which could weigh on the Pound.  Britons mat continue to retrench as BoE Governor Mervyn King confirmed that the economy was indeed in a recession.

Fundamental Outlook
U.K. retail sales is expected to have declined by 0.7% as the credit crisis and a looming recession has caused consumers to curb spending which could weigh on the Pound.  Britons mat continue to retrench as BoE Governor Mervyn King confirmed that the economy was indeed in a recession. The announcement sunk the pound and evidence of declining growth will only add to the pessimistic outlook. Historically a dour consumer spending report of this magnitude would present significant event risk for the Pound, but Governor King’s statements may have diluted its impact. Technicals are calling for a possible reversal which would support the report having less of an impact. However, technicals called for a bottom before the recent downturn so it must be taken with a grain of salt. Nevertheless, the Pound is approaching significant oversold levels where the FXCM SSI is reading at -1.36 as 58% of retail accounts are short the sterling. The contrarian indicator is approaching extreme levels but not to the point where I would say it was strong enough to overlook fundamentals and take a long GBPUSD position.

                                                                                                                                    

Technical Outlook

The drop from 2.1166 has now retraced 61.8% of the entire rally from 1.3680.  Weekly RSI is oversold and divergent, so be on the lookout for a reversal.

 

For More Technical Analysis Visit the Daily Technical Report

 

To discuss this report contact John Rivera, Currency Analyst: jrivera@fxcm.com

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