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Trading the News: U.K. Retail Sales - GBPUSD Rebound Favored on Strong U.K. Retail Sales

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by , 08-21-2014 at 09:09 AM (1096 Views)
      
   
- U.K. Retail Sales to Increase for Second Consecutive Month.
- Private Sector Spending to Rise for Fifth Time in 2014.

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:

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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%
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.

How To Trade This Event Risk
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
GBP/USD Daily

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  • 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

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.

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


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