Pickup in U.K. Retail Sales to Fuel GBP/USD Breakout
20 Aug 2015 04:00, GMT- U.K. Retail Sales to Increase for Fifth Time in Last Seven-Months.
- Will a Rebound in Private-Sector Consumption Encourage a Greater Dissent Within the BoE?
Trading the News: U.K. Retail Sales
A 0.4% rebound in U.K. Retail Sales may heighten the appeal of the British Pound and fuel the near-term breakout in GBP/USD as it puts increased pressure on the Bank of England (BoE) to raise the benchmark interest rate off of the record-low.
What’s Expected:
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Why Is This Event Important:
Positive data prints coming out of the U.K. economy may highlight a tightening race between the BoE/Fed to normalize monetary policy, and GBP/USD may continue to retrace the decline from July 2014 should the fundamental developments spur a growing dissent within the Monetary Policy Committee (MPC).
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Expectations: Bullish Argument/Scenario
| Release | Expected | Actual |
|---|---|---|
| Average Hourly Earnings ex. Bonus (3MoY) (JUN) | 2.8% | 2.8% |
| Jobless Claims Change (JUL) | 1.0K | -4.9K |
| Net Consumer Credit (JUN) | 1.1B | 1.2B |
Stronger wage growth paired with the expansion in private-sector credit may boost household spending in the U.K., and a strong rebound in retail sales may generate fresh monthly highs in GBP/USD as market participants ramp up expectations for a BoE rate hike.
Risk: Bearish Argument/Scenario
| Release | Expected | Actual |
|---|---|---|
| Consumer Price Index Core (YoY) (JUL) | 0.9% | 1.2% |
| Producer Price Index Core- Output n.s.a. (YoY) (JUL) | 0.2% | 0.3% |
| GfK Consumer Confidence (JUL) | 5 | 4 |
However, higher prices along with narrowing confidence may drag on consumer spending, and a dismal print may drag on the British Pound and spur a further delay of the BoE’s normalization cycle as the majority continues to look for a stronger recovery.
How To Trade This Event Risk(Video)
Bullish GBP Trade: Retail Sales Rebounds 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: U.K. Household Spending Falls Short of Market Expectations
- 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 - Created Using FXCM Marketscope 2.0
- Ongoing closes above former-range resistance may highlight a further advance in GBP/USD especially as the bullish RSI momentum gathers pace.
- DailyFX Speculative Sentiment Index (SSI) shows increased volatility in position as the retain-crowd has flipped back to net-long on GBP/USD, with the ratio climbing to +1.16 as 53% of traders are long.
- Interim Resistance: 1.5750 (23.6% retracement) to 1.5780 (38.2% retracement)
- Interim Support: 1.5330 (78.6% retracement) to 1.5350 (50% retracement)
Read More:
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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 |
|---|---|---|---|---|---|
| JUN 2015 | 07/23/2015 8:30 GMT | 0.4% | -0.2% | -51 | -141 |
June 2015 U.K. Retail Sales
U.K. Retail Sales unexpected contracted 0.2% in June after expanding 0.2% the month prior. A deeper look at the report showed demand for Household Goods slipped 0.9% from the previous month to lead the decline, while discretionary spending on Clothing & Footwear increased 0.8% after contracting 1.5% in May. Despite the recent weakness in household consumption, the Bank of England (BoE) may stay on course to normalize monetary policy as Governor Mark Carney anticipates a stronger recovery to emerge in the second-half of 2015. The sterling struggled to hold its ground following the worse-than-expected print, with GBP/USD slipping below the 1.5625 region to end the day at 1.5510.
--- Written by David Song, Currency Analyst and Shuyang Ren
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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