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GBP/USD Risks Further Losses on Slowing U.K. Retail Sales

GBP/USD Risks Further Losses on Slowing U.K. Retail Sales

David Song, Shuyang Ren,


- U.K. Retail Sales to Contract for First Time Since December.

- Will Slower Consumption Encourage the BoE to Further Delay Normalizing Monetary Policy?

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Trading the News: U.K. Retail Sales

The U.K. Retail Sales report may produce headwinds for the British Pound and drag on GBP/USD as signs of a slowing recovery provides the Bank of England (BoE) with greater scope to further delay its normalization cycle.

What’s Expected:

GBP/USD UK Retail Sales

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Why Is This Event Important:

Even though BoE argues that the next policy move will be to lift the benchmark interest rate off of the record-low, the Monetary Policy Committee (MPC) may preserve its current policy throughout 2016 in an effort to mitigate the downside risks surrounding the real economy.

Expectations: Bearish Argument/Scenario

CBI Trends Total Orders (MAR)-14-14
NIESR GDP Estimate (FEB)--0.3%
GfK Consumer Confidence (FEB)3

The recent weakness in household sentiment accompanied by the slowdown in economic activity may drag on private-sector consumption, and a dismal sales report may spur a bearish reaction in GBP/USD as market participants push out bets for a BoE rate-hike.

Risk: Bullish Argument/Scenario

Jobless Claims Change (FEB)-9.1K-18.0K
Average Hourly Earnings ex. Bonus (3MoY) (JAN)2.1%2.2%
Net Consumer Credit (JAN)1.4B1.6B

Nevertheless, the expansion in private-sector lending paired with the ongoing improvement in labor-market dynamics may boost household spending, and a positive development may generate a near-term rebound in GBP/USD as it puts pressure on Governor Mark Carney and Co. to normalize monetary policy sooner rather than later.

How To Trade This Event Risk(Video)

Bearish GBP Trade: Retail Sales Slips 1.0% or Greater

  • Need red, five-minute candle following the GDP report to consider a short British Pound trade.
  • If market reaction favors bearish sterling trade, short GBP/USD with two separate position.
  • Set stop at the near-by swing high/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: U.K. Consumption Beats Market Expectations

  • Need green, five-minute candle to favor a long GBP/USD trade.
  • Implement same setup as the bearish British Pound trade, just in reverse.

Potential Price Targets For The Release


GBP/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Longer-term outlook for GBP/USD remains tilted to the downside as the BoE continues to endorse a wait-and-see approach in 2016, and the pair may continue to carve a series of lower highs & lows over the near to medium-term should the Relative Strength Index (RSI) fail to retain the bullish formation carried over from earlier this year.
  • Interim Resistance: 1.4910 (61.8% retracement) to 1.4930 (38.2% expansion)
  • Interim Support: 1.3870 (78.6% expansion) and 1.4000 pivot

Check out the short-term technical levels that matter for GBP/JPY heading into the report!

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

PeriodData ReleasedEstimateActualPips ChangePips Change



02/19/2016 09:30 GMT0.7%2.3%-8+78

January 2016 U.K. Retail Sales


U.K. Retail Sales beat market expectations in January, with household spending increasing 2.3% after contracting a revised 1.3% in December. A deeper look at the report showed a meaningful rebound in discretionary spending, with sales at non-food stores increasing 3.6%, while spending on clothing & footwear advanced 3.3% during the same period. Despite the better-than-expected print, it seems as though the Bank of England (BoE) will stick to its current policy throughout the first-half of 2016 as the U.K. referendum clouds the economic outlook for the region. Nevertheless, there was a limited market reaction to the data print as GBP/USD dipped below the 1.4300 handle during the European trade, but the sterling regained its footing during the North American session to end the day at 1.4399.

Read More:

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EUR/USD – The Abyss Hopefully Leads to Clarity

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USD/JPY-More at the 110.66 Low Than You Might Think

Get our top trading opportunities of 2016 HERE

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

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

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