– U.K. Retail Sales to Increase for Fifth Time in Last Seven-Months.
– Will a Rebound in Private-Sector Consumption Encourage a Greater Dissent Within the BoE?
Trading the News: U.K. Retail Sales
A 0.4% rebound in U.K. Retail Sales may heighten the appeal of the British Pound and fuel the near-term breakout in GBP/USD as it puts increased pressure on the Bank of England (BoE) to raise the benchmark interest rate off of the record-low.
What’s Expected:
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Why Is This Event Important:
Positive data prints coming out of the U.K. economy may highlight a tightening race between the BoE/Fed to normalize monetary policy, and GBP/USD may continue to retrace the decline from July 2014 should the fundamental developments spur a growing dissent within the Monetary Policy Committee (MPC).
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Expectations: Bullish Argument/Scenario
Release
Expected
Actual
Average Hourly Earnings ex. Bonus (3MoY) (JUN)
2.8%
2.8%
Jobless Claims Change (JUL)
1.0K
-4.9K
Net Consumer Credit (JUN)
1.1B
1.2B
Stronger wage growth paired with the expansion in private-sector credit may boost household spending in the U.K., and a strong rebound in retail sales may generate fresh monthly highs in GBP/USD as market participants ramp up expectations for a BoE rate hike.
Risk: Bearish Argument/Scenario
Release
Expected
Actual
Consumer Price Index Core (YoY) (JUL)
0.9%
1.2%
Producer Price Index Core- Output n.s.a. (YoY) (JUL)
0.2%
0.3%
GfK Consumer Confidence (JUL)
5
4
However, higher prices along with narrowing confidence may drag on consumer spending, and a dismal print may drag on the British Pound and spur a further delay of the BoE’s normalization cycle as the majority continues to look for a stronger recovery.
How To Trade This Event Risk(Video)
Bullish GBP Trade: Retail Sales Rebounds 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: U.K. Household Spending Falls Short of Market Expectations
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.
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Potential Price Targets For The Release
GBP/USD Daily
Chart – Created Using FXCM Marketscope 2.0
Ongoing closes above former-range resistance may highlight a further advance in GBP/USD especially as the bullish RSI momentum gathers pace.
DailyFX Speculative Sentiment Index (SSI) shows increased volatility in position as the retain-crowd has flipped back to net-long on GBP/USD, with the ratio climbing to +1.16 as 53% of traders are long.
Interim Resistance: 1.5750 (23.6% retracement) to 1.5780 (38.2% retracement)
Interim Support: 1.5330 (78.6% retracement) to 1.5350 (50% retracement)
Read More:
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Scalping NZDUSD Opening Range- 6630 Resistance Remains Key Hurdle
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 2015
07/23/2015 8:30 GMT
0.4%
-0.2%
-51
-141
June 2015 U.K. Retail Sales
U.K. Retail Sales unexpected contracted 0.2% in June after expanding 0.2% the month prior. A deeper look at the report showed demand for Household Goods slipped 0.9% from the previous month to lead the decline, while discretionary spending on Clothing & Footwear increased 0.8% after contracting 1.5% in May. Despite the recent weakness in household consumption, the Bank of England (BoE) may stay on course to normalize monetary policy as Governor Mark Carney anticipates a stronger recovery to emerge in the second-half of 2015. The sterling struggled to hold its ground following the worse-than-expected print, with GBP/USD slipping below the 1.5625 region to end the day at 1.5510.
— Written by David Song, Currency Analyst and Shuyang Ren
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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Source: Daily fx