GBP/USD Rebound Favored
Dailyfx | Aug 21, 2014 02:21AM ET
Trading the News: U.K. Retail Sales
A pickup in U.K. Retail Sales may spur a more meaningful rebound in the GBP/USD as it raises the prospects for a stronger recovery in the second-half of 2014.
What’s Expected:
Why Is This Event Important:
The growing dissent within the Bank of England (BoE) should continue to prop up interest rate expectations as a the central bank sees less spare capacity in the U.K. economy, and we may see a greater rift at the next meeting on September 4 should the fundamental developments coming out of the region raise the outlook for growth and inflation.
Expectations: Bullish Argument/Scenario
|
Release |
Expected |
Actual |
|
Consumer Price Index (YoY) (JUL) |
1.8% |
1.6% |
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Jobless Claims Change (JUL) |
-30.0K |
-33.6K |
|
BRC Shop Price Index (YoY) (JUL) |
-1.6% |
-1.9% |
Easing price pressures along with the ongoing improvement in the labor market may generate a better-than-expected sales report, and a marked pickup in household spending may spur a meaningful rebound in the GBP/USD as it puts increased pressure on the BoE to normalize monetary policy sooner rather than later.
Risk: Bearish Argument/Scenario
|
Release |
Expected |
Actual |
|
Gross Domestic Product (QoQ) (2Q P) |
0.8% |
0.8% |
|
Average Weekly Earnings inc Bonus (3MoY) (JUN) |
-0.1% |
-0.2% |
|
Net Consumer Credit (JUN) |
0.8B |
0.4B |
However, subdued wage growth paired with the ongoing slack in the real economy may drag on private consumption, and a dismal print is likely to spur a further decline in the British Pound as market participants scale back bets for an early rate hike.
Bullish GBP Trade: U.K. Retail Sales Climbs 0.4% or Greater
- Need green, five-minute candle following the release to consider a long British Pound trade
- If market reaction favors long 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
Bullish GBP Trade: Household Spending Disappoints
- 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
Potential Price Targets For The Release
- Watching RSI as it struggles to hold above 26 along with the April low (1.6549)
- Interim Resistance: 1.6850-60 (78.6% expansion)
- Interim Support: 1.6560 (38.2% expansion) to 1.6570 (61.8% expansion)
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) |
|
JUN 2014 |
07/24/2014 8:30 GMT |
0.3% |
0.1% |
-19 |
-46 |
June 2014 U.K. Retail Sales
The U.K retail sales report showed a slight increase of 0.1% after contracting 0.5% in May. An decline in demand for textile, clothing and footwear contributed to the weaker-than-expected data. The lackluster print dragged on the pound, with GBP/USD sliding below the 1.7000 handle. The bearish reaction continued throughout the North American trade, with the pair ending the day at 1.6988.
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