Although retail sales in the UK decreased by 4.9%, such data gave a boost to the pound sterling. The fact is that analysts had expected an 8.4% decline annually. So, the reading came out noticeably better than anticipated.
However, analysts believe that there was no drop at all. Sometimes macro stats may be misleading because of the base effect. At the end of May last year, retail sales soared by 23.4% year-on-year.
Back then, a spike in retail sales occurred amid the robust economic recovery after the quarantine restrictions of 2020. At that time, shops did not work, and everyone stayed home. Such a strong surge in retail sales distorts statistics.
For this reason, the annual figure looks somewhat odd. On a monthly basis, everything is different. Retail sales increased by 1.4% instead of declining by 0.2%. Hence, consumer spending is gradually rising despite a fall in the indicator. As a result, the pound sterling was able to advance.
Today, the macroeconomic calendar is empty. The pound sterling rose on Thursday and Friday last week, adding almost 200 pips. However, it is highly likely to slide down today as slightly overbought.
The pound/dollar pair broke through the resistance level of 1.2500 after a short-term weakness. It led to the prolongation of the correction from the support level of 1.2155.
The RSI technical indicator is moving near the 50/70 levels on the 4H chart, signaling the accumulation of long positions in the short term. On the daily chart, it is still hovering below the 50 midlines. If it grows above this line, it will indicate the formation of a prolonged correction in the market.
The moving averages of the Alligator indicator are pointed upwards on the 4H chart, which signals correction. The Alligator indicator also shows a slowdown in the downward movement on the daily chart. It may lead to a convergence of the moving averages.
Outlook
The first signal about the formation of a prolonged correction appeared after a breakout of the 1.2500 level. The quotes need to consolidate above this level on the daily chart to confirm this signal. If so, bulls are likely to push the pair to 1.2635–1.2700. Otherwise, the price may retreat below 1.2500, entering a narrow range.
The complex indicator analysis gives a buy signal on the short-term and intraday charts amid the ongoing correction. Technical indicators continue to generate a sell signal on the medium-term charts because of the main trend.