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GBPUSD to Search for Higher Low If U.K. Retail Sales Disappoint

GBPUSD to Search for Higher Low If U.K. Retail Sales Disappoint

David Song, Gregory Marks,

- U.K. Retail Sales to Mark First Decline Since October

- 1.2% Contraction in Household Spending Would Be Largest Since April 2012

Trading the News: U.K. Retail Sales

The British Pound may face a larger correction over the remainder of the week as U.K. Retail Sales are expected to contract 1.2% in January.

What’s Expected:

Time of release: 02/21/2014 9:30 GMT, 4:30 EST

Primary Pair Impact: GBPUSD

Expected: -1.2%

Previous: 2.8%

DailyFX Forecast: -1.0% to 1.0%

Why Is This Event Important:

A slowdown in household spending may drag on the British Pound as it dampens the prospects of seeing a Bank of England (BoE) rate hike later this year or even in early 2015, but the data print may pave the way for fresh highs in the GBPUSD should it highlight an improved outlook for growth and inflation.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Jobless Claims Change (JAN)

-20.0K

-27.6K

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

0.9%

1.0%

Consumer Price Index (YoY) (JAN)

2.0%

1.9%

The uptick in wage growth along with the ongoing improvement in the labor market may spur a better-than-expected sales report, and a positive development should spark a bullish reaction in the British Pound as it raises the BoE’s scope to normalize monetary policy sooner rather than later.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Net Consumer Credit (DEC)

0.7B

0.6B

CBI Reported Sales (JAN)

25

14

CBI Business Optimism (JAN)

25

21

Nevertheless, the slowdown in private sector credit paired with the persistent slack in the real economy may ultimately drag on consumption, and a dismal development may spur a more meaningful correction in the GBPUSD as market participants scale back bets of seeing higher borrowing costs in the U.K.

How To Trade This Event Risk(Video)

Join DailyFX on Demand for Up-to-Date British Pound Trade Setups!

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

Potential Price Targets For The Release

GBPUSD Daily

Forex_GBPUSD_to_Search_for_Higher_Low_If_U.K._Retail_Sales_Disappoint_body_Picture_2.png, GBPUSD to Search for Higher Low If U.K. Retail Sales Disappoint

Chart - Created Using FXCM Marketscope 2.0

  • Price & RSI Retains Bullish Trend; Looking for Lower High
  • Interim Resistance: 1.6850-60 (78.6% expansion)
  • Interim Support: 1.6300 Pivot to 1.6310 (50.0% expansion)

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)

DEC 2013

01/17/2014 9:30 GMT

0.3%

2.8%

+92

+73

December 2013 U.K. Retail Sales

Forex_GBPUSD_to_Search_for_Higher_Low_If_U.K._Retail_Sales_Disappoint_body_Picture_1.png, GBPUSD to Search for Higher Low If U.K. Retail Sales Disappoint

December Retail Sales figures out of the U.K. blew past street estimates and sent the GBP/USD pair flying over 100pips and above the 1.64 level. After a 2.8% MoM gain from November to December, it is no surprise that estimates point to a negative MoM print this time around. Current surveys indicate a -1.2% MoM and 5.0% YoY reading while those figures incl. auto are slightly better. Data and fundamentals continue to remain strong out of the U.K. and any weakness on a miss here may be short lived when taking a medium term approach.

--- Written by David Song, Currency Analyst and Gregory Marks

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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