GBP/USD Bullish RSI Momentum Susceptible to Weak U.K. Retail Sales
DailyFX.com -
- U.K. Retail Sales to Contract for First Time in Four Months.
- Will Lower Energy Prices & Faster Job/Wage Growth Boost Consumption?
Trading the News: U.K. Retail Sales
A contraction in U.K. Retail Sales may spur a near-term pullback in GBP/USD as it dampens the outlook for a stronger recovery in 2015.
What’s Expected:
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Why Is This Event Important:
However, we may see private-sector consumption outpace market expectations as the Bank of England (BoE) anticipates lower energy prices to boost disposable incomes, and Governor Mark Carney may continue to prepare U.K. households and businesses for higher borrowing-costs as the central bank head turns increasingly upbeat towards the economy.
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Expectations: Bearish Argument/Scenario
Release | Expected | Actual |
Consumer Price Index Core (YoY) (JAN) | 1.4% | 1.4% |
Net Consumer Credit (DEC) | 1.2B | 0.6B |
Gross Domestic Product (QoQ) (4Q A) | 0.6% | 0.5% |
The stickiness in core inflation paired with the slowdown in private-sector credit may trigger a marked decline in U.K. Retail Sales, and a dismal data print may spur a near-term pullback in GBP/USD as it drags on interest rate expectations.
Risk: Bullish Argument/Scenario
Release | Expected | Actual |
Jobless Claims Change (JAN) | -25.0K | -38.6K |
Average Weekly Earnings inc Bonus (3MoY) (DEC) | 1.7% | 2.1% |
GfK Consumer Confidence (JAN) | -2 | 1 |
Nevertheless, improved confidence paired with the pickup in job/wage growth may produce a better-than-expected sales report, and a further improvement in household spending may encourage the BoE to raise the benchmark interest rate sooner rather than later as heightens the prospects for a stronger recovery.
How To Trade This Event Risk(Video)
Bearish GBP Trade: Private Spending in U.K. Contracts 0.2% or Greater
Need red, five-minute candle following the release to consider a short British Pound trade
If market reaction favors short sterling trade, sell 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: Retail Sales Exceeds Market Forecast
Need green, five-minute candle to favor a long GBP/USD trade
Implement same setup as the bearish British Pound trade, just in opposite direction
Potential Price Targets For The Release
GBP/USD Daily Chart
Chart - Created Using FXCM Marketscope 2.0
Lack of momentum to preserve the bullish trend in RSI may highlight a near-term top in GBP/USD as it fails to push back above the former support region.
Interim Resistance: 1.5500 pivot to 1.5520 (38.2% expansion)
Interim Support: 1.5250 (100% expansion) to 1.5270 (38.2% retracement)
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) |
DEC 2014 | 01/23/2015 9:30 GMT | -0.6% | 0.4% | +12 | +16 |
December 2014 U.K. Retail Sales
U.K. Retail Sales unexpectedly rose another 0.4% in December following the 1.6% expansion the month prior, which was largely driven by falling energy prices. The low inflation environment paired with the ongoing improvement in the labor market may encourage a stronger recovery in the U.K. as it boosts private-sector consumption, one of the leading drivers of growth. Despite the positive results, the lack of follow-through behind the initial reaction kept GBP/USD within the weekly range, with the pair closing at 1.4978.
--- 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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