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GBP Soars After UK Retail Sales Beat All Expetctations

GBP Soars After UK Retail Sales Beat All Expetctations

2017-05-18 08:54:00
Nick Cawley, Strategist
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Talking Points

- GBPUSD breaks the 1.3000 level and trades at a September 2016 high.

- Sterling rallies ahead of the data release.

- See the DailyFX Economic Calendar and see what live coverage for key event risk impacting FX markets is scheduled for next week on the DailyFX Webinar Calendar.

UK retail sales beat all market expectations on the upside and sent Sterling rallying in early European trade. The closely watched year-on-year figure rose to 4%, against expectations of 2.1%, while last month’s figure was revised up to 2.0% from 1.7%. On a month-on-month basis, sales rose by 2.3%, against expectations of 1.1%, while March’s monthly figures were upgraded to -1.4% from a prior -1.8%.

While today's figures are set to help improve UK Q2 GDP, analysts point to warm weather and a late Easter as possible drivers behind the rise.

Thursday’s figures are the more impressive though after recent wages data showed consumer’s spending power being crimped.

The latest UK labor market figures, released yesterday, showed that despite the unemployment rate falling to a 42-year low of 4.6%, wage growth remains weak and spending is likely to be further reined in over the coming months. The latest UK inflation rate of 2.7% now trumps the latest average earnings (ex-bonus) print of 2.1%, the first time real wages have fallen in over three years.

And while GBP rallied on the release, a substantial part of the move happened in the 30 minutes or so before the release. GBPUSD hit a post-release high of 1.30462, a level not seen since September 2016.

Chart: GBPUSD Five-Minute Timeframe (May 18, 2017).

GBP Soars After UK Retail Sales Beat All Expetctations

Chart by IG

And a look at the latest IG Client Sentiment Indicators shows that GBP may move higher still, with retail traders net-short of the British Pound.

GBP Soars After UK Retail Sales Beat All Expetctations

Retail trader data show 40.9% of traders are net long, with the ratio of traders short to long at 1.44 to 1. In fact, traders have remained net short since Apr 12, when GBPUSD traded near 1.23716; price has moved 4.7% higher since then. The number of traders net long is 2.2% lower than yesterday and 4.5% lower from last week, while the number of traders net short is 2.2% higher than yesterday and 2.6% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are netshort suggests GBPUSD prices may continue to rise. Traders are further net short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBPUSD-bullish contrarian trading bias.

--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

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