Today’s Retail Sales number from the UK will be widely watched as this is a high-impact yet tradable report. Here is the forecast for this release:
4:30 am (NY Time) Forecast 0.5% Previous 0.6%
ACTION: GBP/USD BUY 1.0% SELL -0.1%
The Trade Plan
Retail Sales, by definition, is a direct measurement of consumer activities at the retail level. A higher release is generally good for the economy and better for its currency; a lower release is considered negative and not good for the economy.
Our tradable deviation or surprise factor for UK Retail Sales is 0.5% to BUY and 0.6% to SELL. If our deviation is hit, we can expect the market to move at least 50 pips within the hour, with the historical accuracy of 72%. We’ll be looking to BUY GBP/USD if we get a 1.0% or better release and SELL GBP/USD if we get a -0.1% or worse.
In today’s market, traders sold off GBP yesterday on the mixed outlook in the UK’s economy but recovered sharply after BOE Sentance’s bullish comments on the fact that the market should not dismiss an end-of-the-year rate hike from BOE. However, GBP suffered again after releasing today’s MPC meeting minutes, which showed a 7-1 vote against Sentance. This led to GBP/USD dropping down to 1.5200… GBP lost further against USD during Fed. Chief Bernanke’s testimony over the “unusual uncertainty” over the economic recovery. Traders responded by buying US Treasuries.
Additionally, the BOE sentence did raise a valid point, especially after the number of government spending and budget cuts which will help the UK’s economy and solidify its fundamental outlook in the long run. I believe the situation in the UK is looking better, and we should see strong resilience in the Sterling. However, the current risk aversion sentiment may continue and weigh down on all risk assets and commodity currencies; therefore, we may see some decline in the Sterling for one or two sessions, but I think GBP should recover as soon as we get a positive news catalyst.
I’d be looking to go LONG on GBP/JPY if this pair falls close to the 130 as GBP should strengthen and JPY should weaken in the mid to long-term outlook…