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Pound Fails To Regain Ground Amid Weak Retail Sales Data

By InstaForex GroupForexOct 25, 2021 08:56AM ET
www.investing.com/analysis/pound-fails-to-regain-ground-amid-weak-retail-sales-data-200606199
Pound Fails To Regain Ground Amid Weak Retail Sales Data
By InstaForex Group   |  Oct 25, 2021 08:56AM ET
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Preliminary estimates of the UK PMI indexes exceeded the wildest expectations. The manufacturing PMI rose to 57.7, whereas economists had expected a fall to 55.9 from 57.1. The services PMI jumped to 58.0 from 55.4.

Analysts were anticipating a decrease to 54.7. Nevertheless, the pound sterling failed to gain momentum amid such upbeat data, gradually declining throughout Friday.

Perhaps traders were disappointed by retail sales data. The reading dropped from 0.2% to 1.3%, signaling a weak recovery of the British economy.

The report on retail sales volumes is the best barometer of purchasing power. If retail sales are declining, then the economic growth is likely to be extremely weak.

Last year, shops, cafes, etc., did not work due to quarantine restrictions. So, there was a substantial drop in retail sales.

After the government eased lockdown measures, many analysts had expected a gradual recovery in consumer activity. However, it did not happen. Retail sales have continued to decline.

UK retail sales data chart.
UK retail sales data chart.

Preliminary estimates of the US PMI indexes also turned out to be better than the forecast figures. However, the manufacturing PMI shrank to 59.2 from 60.7, although it was predicted to decrease only to 60.4.

However, traders were mainly interested in the services PMI. The service sector accounts for four-fifths of GDP. The reading was supposed to rise to 55.1 from 54.9. Yet, the figure climbed to 58.2.

Following this, market participants were hardly surprised by the weakening of the pound sterling. Today, trading is likely to unfold sluggishly as the macroeconomic calendar is almost empty.

US services PMI.
US services PMI.

GBP/USD Technical Outlook

The GBP/USD pair bounced from the resistance level of 1.3800/1.3830, recovering to the Fibonacci retracement level of 38.2.

As a result, traders saw the first signal to sell the pound sterling. It may lead to a trend reversal.

The RSI indicator has crossed the 50 line from top to bottom for the first time since Oct. 13 on the 4-hour chart. This confirms the price reversal signal.

The D1 chart still shows a corrective movement from the support level of 1.3400. The price reversal signal is not visible on this chart.

Outlook

The quote is likely to be trapped between the Fibonacci level of 38.2 and 1.3800 for a while. This may lead to an increase in the volume of short positions.

A clearer signal to sell the pound sterling will appear when the price fixes below 1.3720. In this scenario, the British currency is likely to decline gradually.

Technical indicators give a buy signal on the short-term chart after the price rebounded from the Fibonacci level of 38.2.

On the intraday charts, technical indicators give a long signal amid the price corrective movement.

GBP/USD 4-hour chart technical analysis.
GBP/USD 4-hour chart technical analysis.

InstaForex Group

Pound Fails To Regain Ground Amid Weak Retail Sales Data
 

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Pound Fails To Regain Ground Amid Weak Retail Sales Data

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