GBP/USD: Trading the British Retail Sales Jan 2014

British  Retail Sales is considered one of the most important indicators of consumer spending. The indicator’s release in the first week of each month provides analysts and traders with  an early  look at consumer spending. A reading that is higher than the market forecast is bullish for the British pound.

Here are all the details, and 5 possible outcomes for GBP/USD.

Published on Friday at 9:30 GMT.

 Indicator Background

Consumer spending is one of the most important components of the economy, and strong  retail sales numbers  signify growth and a stronger economy.

Retail Sales bounced back in November with a gain of 0.3%, matching the estimate. This followed a decline of 0.7% a month earlier. The upward swing is expected to continue, with the estimate standing at 0.5%.

Sentiments and levels

Non-Farm Payrolls was a disaster, possibly throwing a monkey wrench in Fed plans for another  taper at the January meeting. At the same time, the fact that QE tapering  is up and running could bolster confidence in the US economy and help the dollar. In the UK, PMIs remain strong but leveled off in December. Is this a signal that the hot UK economy has run out of steam? With the BOE firmly stating that it will not raise interest rates, the pound will need some strong data this week to maintain high levels against the US dollar. So, the overall sentiment is  neutral on GBP/USD towards this release.

Technical levels, from top to bottom: 1.6705, 1.6475, 1.6343, 1.6247 and 1.6125.

5 Scenarios

1. Within expectations: 0.2% to 0.8%: In such a case, the  pound is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 0.9% to 1.2%: An unexpected higher reading can send GBP/USD above one resistance line.
3. Well above expectations: Above 1.2%: Such an outcome would propel the pair upwards, and a second resistance line might be broken as a result.
4. Below expectations: -0.2% to 0.1%: A weak reading near the zero level could push GBP/USD below one level of support.
5. Well below expectations: Below -0.2%: In this scenario, the  pound could take a hit and  break  a second  support level.

For more about the pound, see the  GBP to USD forecast.

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