Poor UK Retail Sales Keeping a Leash on GBP

Poor UK Retail Sales Keeping a Leash on GBP

Today, we had very disappointing retail sales out of the UK for March. Let’s take a look at the data point and the reactions in GBP/USD and EUR/GBP

UK Retail Sales m/m (March): -0.5%
Forecast: 0.4%
Previous: 0.6% (revised from 0.7%)
(click to enlarge; source: forexfactory.com)

UK Retail sales have been in a slump in the second half of 2014, except for a 3-month span of growth towards the end of the year. However, in 2015, both January and March readings have been negative. With the BoE on the fence between dovish and hawkish stance, the soft retail sales data should nudge it towards a dovish one and thus pressure the pound.

Let’s take a look at some pound-crosses.

GBP/USD 4H Chart 4/23gbpusd4h04232015
click to enlarge)

The GBP/USD has been on a bullish correction since making a low on the year last week at 1.4564. As we can see, price action was actually bullish after the poor retail sales data. However, the USD was falling across the board, so this is a USD-story, not a GBP one.

Still the disappointing data should weigh against the bullish correction and we should expect some resistance in the 1.5080-1.51 area, especially with a bearish divergence spotted in the 4H chart. It is not like GBP/USD is bullish, it is simply in a bullish correction, so we should respect resistance/overbought signals.

EUR/GBP 4H Chart 4/23
(click to enlarge)

We can see the GBP’s weakness in the EUR/GBP pair. There was worse than expected manufacturing and services PMI data out of the Eurozone, but they were all still above 50, which reflects growth. In the 4H chart, we can see that price bounced off 0.7106 and is now pushing at 0.72. IT broke above a falling trendline and the 50-period SMA. Still, this market is bearish unless price breaks above 0.7240 and the 4H RSI clears 60. In fact, because the ECB is still planning to implement the full version of QE, we should expect the EUR/GBP to remain bearish at least or the short-term. In other words, expect some bullish momentum from today’s reaction, but look for sellers to push price at least back towards the 0.71 area.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.