- U.K. Retail Sales to Pick Up for First Time Since November.
- Will Lower Energy Prices Boost Private-Sector Spending?
Trading the News: U.K. Retail Sales
A 0.4% rebound in U.S. Retail Sales may improve the British Pound’s appeal and generate a more meaningful rebound in GBP/USD as it puts increased pressure on the Bank of England (BoE) to normalize monetary policy.
What’s Expected:
Why Is This Event Important:
Prospects for a stronger recovery may prompt an increased number of BoE officials to adopt a more hawkish tone for monetary policy, and we may see Governor Mark Carney continue to prepare U.K. households and businesses for higher borrowing-costs as the central bank turns increasingly upbeat towards the economy. However, with the May election quickly approaching, the Monetary Policy Committee (MPC) may continue to endorse a wait-and-see approach going into mid-2015 amid the risk for a material shift in fiscal policy.
Expectations: Bullish Argument/Scenario
Release | Expected | Actual |
Consumer Price Index Core (YoY) (FEB) | 1.3% | 1.2% |
Employment Change (3Mo3M) (JAN) | 130K | 143K |
BRC Shop Price Index (YoY) (FEB) | -1.2% | -1.7% |
Easing consumer prices paired with the pickup in job growth may encourage a strong rebound in household spending, and a positive development may produce a more meaningful correction in GBP/USD as it boosts interest rate expectations.
Risk: Bearish Argument/Scenario
Release | Expected | Actual |
Average Weekly Earnings in Bonus (3MoY) (JAN) | 2.2% | 1.8% |
Net Consumer Credit (JAN) | 0.9B | 0.8B |
GfK Consumer Confidence (FEB) | 2 | 1 |
However, the ongoing weakness in wage growth along with the slowdown in private-sector credit may drag on household spending, and another dismal retail sales report may heighten the bearish sentiment surrounding the sterling as the near-term outlook remains clouded by the May elections.
Bullish GBP Trade: Retail Sales Expands 0.4% or Greater
- Need green, five-minute candle following the release to consider a long British Pound trade.
- If market reaction favors bullish 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.
Bearish 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 Chart
Chart - Created Using FXCM Marketscope 2.0
- GBP/USD continue to face range-bound ahead of the May 2015 election as it clouds the fundamental outlook for the U.K. economy, but a break of the bullish RSI momentum raises the risk for fresh-lows in the exchange rate.
- Interim Resistance: 1.4980 (38.2% retracement) to 1.5015 (50% expansion)
- Interim Support: 1.4700 pivot to 1.4710 (78.6% 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) |
JAN 2015 | 02/20/2015 9:30 GMT | -0.2% | -0.3% | +12 | +16 |
January 2015 U.K. Retail Sales
U.K. Retail Sales slipped another 0.3% in February after contracting a revised 0.1% the month prior. The ongoing weakness in private sector-consumption may encourage the Bank of England (BoE) to further delay the normalization cycle as the entire committee now favors a wait-and-see approach, and the British Pound remains at risk of facing additional headwinds over the near-term as the May election clouds the outlook for fiscal policy. The market reaction was short-lived as GBP/USD held its ground throughout the North American trade to end the day at 1.5399.