GBP/USD: Trading the British Retail Sales Aug 2013

British Retail Sales is considered one of the most important indicators of consumer spending. The indicator is released on a quarterly basis, magnifying its impact. A reading that is higher than the market forecast is bullish for the pound.

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

Published on Thursday at 8:30 GMT.

 Indicator Background

Retail Sales provides a snapshot of the health of consumer spending in the UK, which is a critical component of economic growth. Given its importance, an unexpected Retail Sales reading can have a major impact on the movement of GBP/USD.

The Q1 release posted a weak gain of just 0.2%. Although this matched the market forecast, GDP looked much weaker compared to Q4 of 2012, when it posted a strong 2.1% gain. The markets are expecting a stronger showing for the Q2 release, with an estimate of 0.7%. Will the indicator meet or beat the forecast?

Sentiments and levels

British data has shown some improvement lately, led by solid PMIs and manufacturing data. This has helped fuel the pound’s improvement against the US dollar. In the US, the economy is moving along nicely, although we continue to see mixed numbers. Any further improvement in US employment numbers will likely increase speculation about QE tapering and even the rumor of Fed action on this front is bullish for the US dollar. So, the overall sentiment is neutral on GBP/USD towards this release.

Technical levels, from top to bottom: 1.5648, 1.5550, 1.5484, 1.5350, 1.5258 and 1.5196.

5 Scenarios

1. Within expectations: 0.4% to 1.0%: In such a case, GBP/USD is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 1.1% to 1.5%: An unexpected higher reading can send GBP/USD above one resistance line.
3. Well above expectations: Above 1.5%: Such an outcome would likely propel the pair upwards, and a second resistance line might be broken as a result.
4. Below expectations: -0.1% to 0.3%: A weak reading could push GBP/USD below one level of support.
5. Well below expectations: Below -0.1%: In this scenario, the pound will likely take a hit, and could break a second support level.

For more about the pound, see the GBP/USD.

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