Strong U.K. Sales to Threaten Weekly GBP/USD Range- 1.4980 in Focus
- U.K. Retail Sales to Pick Up for First Time Since November.
- Will Lower Energy Prices Boost Private-Sector Spending?
Trading the News: U.K. Retail Sales
A 0.4% rebound in U.S. Retail Sales may improve the British Pound’s appeal and generate a more meaningful rebound in GBP/USD as it puts increased pressure on the Bank of England (BoE) to normalize monetary policy.
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Why Is This Event Important:
Prospects for a stronger recovery may prompt an increased number of BoE officials to adopt a more hawkish tone for monetary policy, and we may see Governor Mark Carney continue to prepare U.K. households and businesses for higher borrowing-costs as the central bank turns increasingly upbeat towards the economy. However, with the May election quickly approaching, the Monetary Policy Committee (MPC) may continue to endorse a wait-and-see approach going into mid-2015 amid the risk for a material shift in fiscal policy.
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Expectations: Bullish Argument/Scenario
|Consumer Price Index Core (YoY) (FEB)||1.3%||1.2%|
|Employment Change (3Mo3M) (JAN)||130K||143K|
|BRC Shop Price Index (YoY) (FEB)||-1.2%||-1.7%|
Easing consumer prices paired with the pickup in job growth may encourage a strong rebound in household spending, and a positive development may produce a more meaningful correction in GBP/USD as it boosts interest rate expectations.
Risk: Bearish Argument/Scenario
|Average Weekly Earnings in Bonus (3MoY) (JAN)||2.2%||1.8%|
|Net Consumer Credit (JAN)||0.9B||0.8B|
|GfK Consumer Confidence (FEB)||2||1|
However, the ongoing weakness in wage growth along with the slowdown in private-sector credit may drag on household spending, and another dismal retail sales report may heighten the bearish sentiment surrounding the sterling as the near-term outlook remains clouded by the May elections.
How To Trade This Event Risk(Video)
Bullish GBP Trade: Retail Sales Expands 0.4% or Greater
- Need green, five-minute candle following the release to consider a long British Pound trade.
- If market reaction favors bullish 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.
Bearish 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 Chart
Chart - Created Using FXCM Marketscope 2.0
- GBP/USD continue to face range-bound ahead of the May 2015 election as it clouds the fundamental outlook for the U.K. economy, but a break of the bullish RSI momentum raises the risk for fresh-lows in the exchange rate.
- Interim Resistance: 1.4980 (38.2% retracement) to 1.5015 (50% expansion)
- Interim Support: 1.4700 pivot to 1.4710 (78.6% expansion)
Impact that the U.K. Retail Sales report has had on GBP during the last release
|Period||Data Released||Estimate||Actual||Pips Change||Pips Change|
|JAN 2015||02/20/2015 9:30 GMT||-0.2%||-0.3%||+12||+16|
January 2015 U.K. Retail Sales
U.K. Retail Sales slipped another 0.3% in February after contracting a revised 0.1% the month prior. The ongoing weakness in private sector-consumption may encourage the Bank of England (BoE) to further delay the normalization cycle as the entire committee now favors a wait-and-see approach, and the British Pound remains at risk of facing additional headwinds over the near-term as the May election clouds the outlook for fiscal policy. The market reaction was short-lived as GBP/USD held its ground throughout the North American trade to end the day at 1.5399.
--- Written by David Song, Currency Analyst and Shuyang Ren
To contact David, e-mail email@example.com. Follow me on Twitter at @DavidJSong.
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