GBP/USD outlook – Falling trend line breached ahead of UK retail

FX:GBPUSD   British Pound/U.S. Dollar
Falling Brexit risks and mixed UK employment and labor data released yesterday pushed GBP/USD             pair to an intraday high of 1.4634 (just short of 1.4636 (38.2% of 5930-13835) before hawkish Fed minutes pushed the currency back to 1.4597 levels.

Nevertheless, the daily closing at 1.4597 means a larger falling trend line drawn from Aug 25 high and Nov 2 high has been breached. The focus today is on the UK retail sales data, which is expected to show a 0.7% rebound in April. That amounts to a annualized growth of 2%. Core is seen rising 0.6% m/m and 2.5% y/y respectively.

Retail sales could miss estimates

A leading indicator - monthly Retail Sales Monitor (RSM) from the British Retail Consortium (BRC) and KPMG – released earlier this month showed sales in April fell on a like-for-like basis compared to last year.

Like-for-like sales fell 0.9% in April on a year earlier, the biggest drop since last August following a drop of 0.7% in March. Cold weather affected sales of spring and summer clothing and cautious shoppers reduced spending. Another point worth noting is wage growth excluding bonus slowed down in April and that too could have forced consumers to spend less.

Consequently, the official retail sales may miss estimates. However, it is worth noting that - Unlike the official retail measure, the BRC is not calendar adjusted and so likely was depressed by the shift in the timing of Easter.

Technicals – Poised for gains

  • Pair’s bullish break from larger falling trend line coupled with bullish daily RSI only adds credence to bullish 21-day EMA and 55-day EMA bullish crossover seen in late April and indicates scope for further gains towards 1.47 levels.
  • On the way higher, 1.4636 could act as a strong hurdle, which needs to be breached. A strong rebound in retail sales could help pair cut through 1.4636 and test supply around 1.47 handle.
  • Bears need to watch out for a rebound from (sub) 1.4548 levels followed by break above 1.4606 as that would signal a possible break above 1.4636 and rally to 1.47 handle.
  • On the lower side, only an hourly close below 1.4548 could signal intraday bullish invalidation and expose 1.45 handle.
  • Given the bullish break on charts, it would take a horribly weak retail sales figure to kill the bullish momentum.
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