GBPUSD: Trading The U.K. Retail Sales Report

By David Song, Currency AnalystMichael Boutros, Currency Strategist

Tradingthe News: U.K.Retail Sales

What’s Expected:

Time of release: 03 / 22 / 2012 9 : 30 GMT, 5 : 30 EST

Primary PairImpact : GBP USD

Expected: -0.5%

Previous: 1.2%

DailyFXForecast: -0.2% to0.2%

Why Is This Event Important:

U.K. retail sales are projected to fall 0.5% in February after expanding 1.2% in the previous month, and the slowdown in private sector consumption may drag on the British Pound as it dampens the outlook for growth. As Bank of England board members David Miles and Adam Posen push for more quantitative easing, fears of a protracted recovery may lead the Monetary Policy Committee to extend its easing cycle, but an above-forecast print would curb speculation for more easing as central bank officials raise their fundamental assessment for the region.

Recent Economic Developments

The Upside

Release

Expected

Actual

Mortgage Approvals (JAN)

54.0K

58.7K

CBI Reported Sales (FEB)

-12

-2

Private Consumption (4Q P)

0.2%

0.5%

The Downside

Release

Expected

Actual

Consumer Price Index (YoY) (FEB)

3.3%

3.4%

Jobless Claims Change (FEB)

5.0K

7.2K

Average Weekly Earnings inc Bonus (3MoY) (JAN)

1.9%

1.4%

The resilience in private sector consumption paired with expectations for a more robust recovery may generate a strong retail sales report, and an above-forecast print could spark another run at 1.6000 as market participants scale back speculation for additional monetary support. However, subdued wage growth paired with the ongoing weakness in the labor market may weigh on household consumption, and the BoE may keep the door open to expand monetary policy further as it aims to encourage a stronger recovery. In turn, a weak sales figure may lead the GBPUSD to give back the advance from earlier this month, and we may see the pair fall back towards 1.5600 to test for near-term support.

Potential Price Targets For The Release

A look at theencompassing structure sees the sterling trading within theconfines of a broad ascending channel formation dating back to theJanuary 13th lows before encountering strong resistance at theconfluence of the 78.6% Fibonacci retracement taken from theFebruary 29th decline and trendline resistance dating back toSeptember 19th just above the 1.59-figure. Daily support rests withthe 200-day moving average with the 61.8% retracement at 1.5840offering additional support. Note that RSI remains below trendlineresistance dating back to February 7th with a breach above thislevel likely to alleviate the recent downside pressure on thepound.

Interim resistance for the GBPUSD stands at the 78.6% Fibonacci extension taken from the February 22nd and March 1st troughs at 1.5870 backed by 1.5890, and 1.5920. A breach above the 100% extension at 1.5945 further negates the bearish tone on the pair with such a scenario eyeing topside targets at 1.5975 and the 1.60-handle. Interim support rests with the 61.8% extension at 1.5815 backed by 1.5770 and the 38.2% extension at 1.5730. Should the print prompt a bearish response, look to target downside levels with a break below 1.5750 offering further conviction on a bearish directional bias.

How To Trade This Event Risk

Expectations for a drop in retail sales instills a bearish outlook for the sterling, but an above-forecast print could pave the way for a long British Pound trade as the data dampens expectations for more monetary easing. Therefore, if the report tops forecasts or unexpectedly increases from the previous month, we will need to see a green, five-minute candle following the release to establish a buy entry on two-lots of GBPUSD. Once these conditions are met, we will set the initial stop at the nearby swing low or a reasonable distance from the entry, and this risk will generate our first target. The second objective will be based on discretion, and we will move the stop on the second lot to cost once the first trade hits its mark in order to protect our profits.

On the other hand, the ongoing slack within the private sector paired with the stickiness in consumer prices may drag on consumption, and a dismal sales report could spark a selloff in the exchange rate as it raises speculation for additional monetary support. As a result, should retail spending fall short of market expectation, we will implement the same strategy for a short pound-dollar trade as the long position mentioned above, just in the opposite direction.

Impact that U.K. Retail Sales has had on GBP during the last month

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JAN 2012

2/17/2012 9:30 GMT

-0.3%

1.2%

+22

+4

January 2012 U.K. Retail Sales

Household consumption in the U.K. unexpectedly increased 1.2% after expanding 0.6% in December as businesses continued to conduct heavy discounting in order to draw demands. The ongoing improvement in private sector consumption propped up the British Pound, with the GBPUSD climbing back above 1.5850, but we saw the sterling consolidate during the North American to end the session at 1.5825.

http://forexforums.dailyfx.com/dailyfx-education-videos-forex-trading-strategies/89952-dailyfx-trading-news.html?cmp=SFS-70160000000ELfrAAG

--- Written by David Song, Currency Analyst andMichael Boutros, Currency Strategist

To contact David, e-mail dsong@dailyfx.com. Followme on Twitter at @DavidJSong

To contact Michael email mboutros@dailyfx.comorfollow him on Twitter @MBForex.

To be added to David's e-mail distribution list,send an e-mail with subject line "Distribution List" todsong@dailyfx.com.

To be added to Michael’s email distributionlist, send an email with subject line “DistributionList” to mboutros@dailyfx.com

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DailyFX is the forex news and research arm of FXCM, Inc (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

Original Article: http://www.dailyfx.com/forex/fundamental/daily_briefing/daily_pieces/trading_news_reports/2012/03/21/GBPUSD_Trading_the_U.K._Retail_Sales_Report.html

DailyFX is the forex news and research arm of FXCM (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

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