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GBP/USD Rebound Favored on Strong U.K. Retail Sales

GBP/USD Rebound Favored on Strong U.K. Retail Sales

David Song, Shuyang Ren,

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

- Private Sector Spending to Rise for Fifth Time in 2014.

Trading the News: U.K. Retail Sales

A pickup in U.K. Retail Sales may spur a more meaningful rebound in the GBP/USD as it raises the prospects for a stronger recovery in the second-half of 2014.

What’s Expected:

GBP/USD U.K. Retail Sales

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Why Is This Event Important:

The growing dissent within the Bank of England (BoE) should continue to prop up interest rate expectations as a the central bank sees less spare capacity in the U.K. economy, and we may see a greater rift at the next meeting on September 4 should the fundamental developments coming out of the region raise the outlook for growth and inflation.

Join DailyFX on Demand to Cover Current British Pound Trade Setups

Expectations: Bullish Argument/Scenario




Consumer Price Index (YoY) (JUL)



Jobless Claims Change (JUL)



BRC Shop Price Index (YoY) (JUL)



Easing price pressures along with the ongoing improvement in the labor market may generate a better-than-expected sales report, and a marked pickup in household spending may spur a meaningful rebound in the GBP/USD as it puts increased pressure on the BoE to normalize monetary policy sooner rather than later.

Risk: Bearish Argument/Scenario




Gross Domestic Product (QoQ) (2Q P)



Average Weekly Earnings inc Bonus (3MoY) (JUN)



Net Consumer Credit (JUN)



However, subdued wage growth paired with the ongoing slack in the real economy may drag on private consumption, and a dismal print is likely to spur a further decline in the British Pound as market participants scale back bets for an early rate hike.

How To Trade This Event Risk(Video)

Bullish GBP Trade: U.K. Retail Sales Climbs 0.4% or Greater

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

Bullish GBP Trade: Household Spending Disappoints

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

Potential Price Targets For The Release



Chart - Created Using FXCM Marketscope 2.0

  • Watching RSI as it struggles to hold above 26 along with the April low (1.6549)
  • Interim Resistance: 1.6850-60 (78.6% expansion)
  • Interim Support: 1.6560 (38.2% expansion) to 1.6570 (61.8% expansion)

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


Data Released



Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JUN 2014

07/24/2014 8:30 GMT





June 2014 U.K. Retail Sales


The U.K retail sales report showed a slight increase of 0.1% after contracting 0.5% in May. An decline in demand for textile, clothing and footwear contributed to the weaker-than-expected data. The lackluster print dragged on the pound, with GBP/USD sliding below the 1.7000 handle. The bearish reaction continued throughout the North American trade, with the pair ending the day at 1.6988.

--- Written by David Song, Currency Analyst and Shuyang Ren

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

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

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