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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.

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Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Price Index (YoY) (JUL)

1.8%

1.6%

Jobless Claims Change (JUL)

-30.0K

-33.6K

BRC Shop Price Index (YoY) (JUL)

-1.6%

-1.9%

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

Release

Expected

Actual

Gross Domestic Product (QoQ) (2Q P)

0.8%

0.8%

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

-0.1%

-0.2%

Net Consumer Credit (JUN)

0.8B

0.4B

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

GBP/USD Daily

GBP/USD Daily

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

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JUN 2014

07/24/2014 8:30 GMT

0.3%

0.1%

-19

-46

June 2014 U.K. Retail Sales

GBP/USD Chart

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 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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