GBP/USD – Trading The British Retail Sales

British Retail Sales is the primary gauge of consumer spending and is  one of the most important economic releases. A reading that is higher than the market forecast is bullish for the British pound.

Update:  UK retail sales drop 1.5% – more than expected

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

Published on Friday at 9:30 GMT.

 Indicator Background

An increase in  retail sales numbers  signifies stronger consumer spending, which is a key component of economic activity.

Retail Sales  looked sharp in December, jumping 2.6%.  This easily beat the estimate of 0.5%. The markets are bracing for a sharp downturn in the upcoming release, with the  estimate standing at -0.9%. Will  the indicator surprise the markets again with a strong performance?

 

Sentiments and levels

The pound  was red-hot last week  but has since given up some of those gains. UK releases such as PMIs have lost some ground and the BOE has said that there is still plenty of slack in the economy. The pound got a strong lift from an admission from the BOE that an interest rate hike is possible next year, but the pound may run into some turbulence if the economy slows down. In the US, the general direction of the economy is positive, but recent hiccups in employment releases are weighing on the dollar and could delay further QE tapers.  So, the overall sentiment is  neutral on GBP/USD towards this release.

Technical levels, from top to bottom: 1.7180, 1.6990, 1.6705, 1.66, 1.6475 and  1.6343.

5 Scenarios

1. Within expectations:-1.1% to -0.9%: In such a case, the  pound is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: -0.8% to -0.5%: An unexpected higher reading can send GBP/USD above one resistance line.
3. Well above expectations: Above -0.5%: Such an outcome  could propel  the pair upwards, and a second resistance line might be broken as a result.
4. Below expectations: -1.5% to -1.2%: A weak reading could push GBP/USD below one level of support.
5. Well below expectations: Below -1.5%: A strong contraction in the reading could push the  pound below  a second  support level.

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

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