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GBP/USD to Target 1.5150 Objective on Strong U.K. Retail Sales

GBP/USD to Target 1.5150 Objective on Strong U.K. Retail Sales

David Song, Shuyang Ren,

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

- Will Lower Energy Prices Continue to Boost Private-Sector Spending?

Trading the News: U.K. Retail Sales

Another 0.5% expansion in U.K. Retail Sales may prompt a larger rebound in GBP/USD as it raises the Bank of England’s (BoE) scope to normalize monetary policy sooner rather than later.

What’s Expected:

GBP/USD Retail Sales

Click Here for the DailyFX Calendar

Why Is This Event Important:

It seems as though the BoE is adopting a more hawkish tone for monetary policy and will continue to prepare U.K. households and businesses for higher borrowing-costs as the central bank argues that the interest rate path based on market expectations are ‘exceptionally flat.’

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Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Employment Change (3Mo3M) (FEB)

170K

248K

Gross Domestic Product (YoY) (4Q F)

2.7%

3.0%

GfK Consumer Confidence (MAR)

2

4

Improved confidence along with the pickup in job growth may spur a better-than-expected retail sales report, and another marked expansion in household spending may heighten the appeal of the British Pound as it raises the fundamental outlook for the U.K.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

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

1.8%

1.7%

Net Consumer Credit (FEB)

0.9B

0.7B

M4 Money Supply (YoY ) (FEB)

--

-3.2%

However, weak wage growth paired with the slowdown in private-sector credit may drag on consumption, and a dismal retail sales print may further delay the BoE’s normalization cycle as the central bank highlights the ongoing slack in the real economy.

How To Trade This Event Risk(Video)

Bullish GBP Trade: U.K. Retail Sales Climbs 0.5% 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 Falls Short of Market Forecasts

  • 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.

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Potential Price Targets For The Release

GBP/USD Daily Chart

GBP/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Close above the 1.5000 handle raises the risk for a larger rebound as the RSI retains the bullish momentum carried over from back in March.
  • Seeing increased volatility in the DailyFX Speculative Sentiment Index (SSI) following the BoE Minutes as retail crowd flips net-short GBP/USD, with ratio currently holding at -1.13.
  • Interim Resistance: 1.4980 (38.2% retracement) to 1.5015 (50% expansion)
  • Interim Support: 1.4700 pivot to 1.4710 (78.6% expansion)

Read More:

GBPNZD: Explosive Pattern Taking Shape at Critical Levels

GBPCAD Testing Slope Resistance- Long Scalps at Risk Sub 1.84

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)

FEB 2015

03/26/2015 9:30 GMT

0.4%

0.7%

-29

-112

February 2015 U.K. Retail Sales

GBP/USD Chart

U.K. Retail Sales expanded 0.7% in February after contracting a revised 0.3% the month prior amid a pickup across all sectors. Despite the rebound in retail spending, it seems as though the Bank of England (BoE) will retain a neutral stance ahead of the May election as the fiscal outlook remains clouded with high uncertainty. The market reaction to the better-than-expected prints was short-lived as GBP/USD slopped back below the 1.4900 handle to end the day at 1.4852.

--- 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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