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Pound Weakness to Be Short-Lived as U.K. Retail Sales Rebounds

Pound Weakness to Be Short-Lived as U.K. Retail Sales Rebounds

David Song, Strategist

- U.K. Retail Sales to Rebound 0.4% in September

- 0.9% Decline in August Marked the Largest Decline in 2013

Trading the News: U.K. Retail Sales

U.K. Retail Sales are expected to increase 0.4% in September, and a marked rebound in private sector consumption should heighten the appeal of the British Pound as it raises the scope for a stronger recovery in Britain.

What’s Expected:

Time of release: 10/16/2013 8:30 GMT, 4:30 EDT

Primary Pair Impact: GBPUSD

Expected: 0.4%

Previous: -0.9%

DailyFX Forecast: -0.2% to 0.5%

Why Is This Event Important:

A pickup in household spending may encourage the Bank of England (BoE) to adopt a more hawkish tone for monetary policy, and the central bank may show a greater willingness to implement its exit strategy ahead of schedule in an effort to achieve the 2% target for inflation.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Jobless Claims Change (SEP)

-25.0K

-41.7K

Net Consumer Credit (AUG)

0.6B

0.6B

GfK Consumer Confidence (SEP)

-11

-10

The ongoing improvement in the labor market along with the expansion in consumer credit may prompt a better-than-expected sales report, and we may see the BoE take a more stern approach in achieve the inflation target as sticky price growth continues to sap purchasing power for U.K. households.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Average Weekly Earnings ex Bonus (3MoY) (AUG)

1.0%

0.8%

Consumer Price Index (YoY) (SEP)

2.6%

2.7%

CBI Trends Selling Price (SEP)

2

3

However, subdued wage growth paired with sticky inflation may spark a further decline in consumer spending, and the Monetary Policy Committee may keep the door open to expand the balance sheet further in an effort to encourage a stronger recovery.

How To Trade This Event Risk(Video)

Bullish GBP Trade: Retail Sales Climbs 0.4% or Greater

  • Need green, five-minute candle following the release to consider a bullish GBPUSD trade
  • If reaction favors a buy trade, long British Pound with two separate position
  • Set stop at the near-by swing low/reasonable distance from cost; look for 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 Contracts for Second Month

  • Need red, five-minute candle to look at a short GBPUSD trade
  • Implement same setup as the bullish British Pound trade, just in reverse

Potential Price Targets For The Release

GBPUSD Daily

Forex_Pound_Weakness_to_Be_Short-Lived_as_U.K._Retail_Sales_Rebounds_body_Picture_2.png, Pound Weakness to Be Short-Lived as U.K. Retail Sales Rebounds

Chart - Created Using FXCM Marketscope 2.0

  • Close Above 1.5900-10 (78.6% expansion) Offers Constructive View
  • Relative Strength Index Holds 50 Mark Following Bullish Break
  • Interim Resistance: 1.6300 Pivot (2012 highs)
  • Interim Support: 1.5900-10 (78.6% Fibonacci expansion)

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

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

AUG 2013

09/19/2013 8:30 GMT

0.4%

-0.9%

-37

-82

August 2013 U.K. Retail Sales

Forex_Pound_Weakness_to_Be_Short-Lived_as_U.K._Retail_Sales_Rebounds_body_ScreenShot245.png, Pound Weakness to Be Short-Lived as U.K. Retail Sales Rebounds

Retail spending in the U.K. unexpectedly slipped 0.9% in September following a 1.2% rise the month prior, which was largely driven by a 1.6% decline in Household Goods Stores sales. The dismal print triggered a selloff in the British Pound, with the GBPUSD slipping below the 1.6100 handle, and the sterling weakened further throughout the North American trade as the pair closed at 1.6029.

--- 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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