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GBPUSD Rate Susceptible to Dismal UK Retail Sales Report

GBPUSD Rate Susceptible to Dismal UK Retail Sales Report

2019-05-24 07:30:00
David Song, Strategist
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Trading the News: U.K. Retail Sales

The U.K. Retail Sales report may keep GBP/USD under pressure as the headline reading for household spending is expected to contract 0.4% in April.

Image of DailyFX economic calendar

Signs of a less robust economy may produce headwinds for the British Pound as it encourages the Bank of England (BoE) to retain a wait-and-see approach for monetary policy. The central bank may come under pressure to abandon its rate hike bias as ‘quarterly growth is expected to slow to around 0.2% in Q2.

With that said, a decline of 0.4% or greater may trigger a bearish reaction in GBP/USD, but a positive development may curb the recent decline in the Pound Dollar exchange rate as Governor Mark Carney & Co. insist that ‘were the economy to develop broadly in line with its Inflation Report projections, an ongoing tightening of monetary policy over the forecast period, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% target at a conventional horizon.

Keep in mind, headlines surrounding the Brexit negotiations may produce increased volatility in GBP/USD as Prime Minister Theresa May struggles to secure a deal.

Impact that the U.K. Retail Sales report had on GBP/USD during the last print

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAR

2019

04/18/2019 08:30:00 GMT

-0.3%

1.1%

0

-35

March 2019 U.K. Retail Sales

GBP/USD 10-Minute Chart

Image of gbpusd 10-minute chart

The U.K. Retail Sales report showed an unexpected expansion in household consumption, with private-sector spending increasing 1.1% in March after expanding a revised 0.6% the month prior. A deeper look showed the better-than-expected print was generate by a 4.2% rise in ‘non-store retailing,’ with the volume of retail sales increasing 6.7% from the previous year to mark the fastest pace of growth since 2016.

The initial reaction to the above-forecast print was short-lived, with GBP/USD struggling to hold above the 1.3000 handle as the exchange rate closed the day at 1.2979. Learn more with the DailyFX Advanced Guide for Trading the News.

GBP/USD Rate Daily Chart

Image of gbpusd daily chart
  • Keep in mind, the broader outlook for GBP/USD is no longer bullish as the exchange rate snaps the upward trend from late last year after failing to close above the Fibonacci overlap around 1.3310 (100% expansion) to 1.3370 (78.6% expansion).
  • As a result, the advance from the 2019-low (1.2373) may continue to unravel as the Relative Strength Index (RSI) highlights a similar dynamic, with the oscillator now tracking the bearish formation carried over from March.
  • A break/close below the 1.2610 (23.6% retracement) to 1.2640 (38.2% expansion) region opens up the Fibonacci overlap around 1.2370 (50% expansion) to 1.2440 (50% expansion), which largely lines up with the 2019-low (1.2373).
  • Will keep a close eye on the RSI as the oscillator pushes into oversold territory, but a move back above 30 may foreshadow a rebound in GBP/USD as the bearish momentum abates.

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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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