- The share of sell orders inched up from 52 to 54%
- 66% of traders are now long the Pound
- Immediate resistance is around 1.2680
- The closest support is at 1.2530
- Upcoming Events: US Existing Home Sales, US Markit Manufacturing PMI
British retail sales dropped markedly last month amid higher prices, linked to the weaker Sterling. The Office for National Statistics reported retail sales dropped 1.9% in December, worse than an expected 0.1% fall. That was the largest decline since April 2012. Meanwhile, the November gain of 0.2% was revised down to –0.1%. December's weak retail sales most probably dampened economic growth in the last quarter of 2016. Markets suggest the economy grew at an annualized pace of 1.2% in the Q4, compared to the preceding quarter's 1.8%, since the British economy was mainly boosted by consumer spending since the June 23 referendum. In volume terms, annual sales fell to three-month lows of 4.3%, following November's 5.7%. Moreover, yearly shop price inflation hit 0.9%, the highest in three years, supporting the latest CPI report released by the ONS, which showed that consumer prices advanced 1.6%.
In addition, earlier this week, the ONS reported that consumer prices rose at a stronger than expected pace last month. The weak December figure showed a strong contrast with reports received from major retailers, who enjoyed a fruitful Christmas season. Even though retail sales posted the biggest monthly fall last month, they managed to climb 4.3% on an annual basis. Following the release, the Pound dropped against the US Dollar, trading at $1.23.
US Markit Manufacturing PMI and US Existing Home Sales
Today traders can focus on the US Markit Manufacturing PMI, which captures business conditions in the manufacturing sector. As the manufacturing sector dominates a large part of total GDP, the Manufacturing PMI is an important indicator of business conditions and the overall economic condition in the US. Another possible event to pay attention to will be the US Existing Home Sales, as they provide an estimated value of housing market conditions. As the housing market is considered as a sensitive factor to the US economy, it generates some volatility for the USD.
GBP/USD awaits UK Supreme Court ruling
The Sterling overperformed on Monday, having climbed over the 1.25 handle, even piercing the second resistance cluster at 1.2515. Tuesday is rather sensitive day, as a rather important question concerning Brexit is to be dealt with. As a result, the Cable risks falling back under 1.24, with the possibility of the 1.21 mark even being reached, where the monthly S1 coincides with the weekly one. However, a positive development is also possible, with the 1.2750 level expected to be the ceiling, assuming the strong resistance around 1.2680, formed by the 23.60% Fibo, the weekly R2 and the monthly R1, is breached. Technical studies are unable to confirm either scenario.
Daily chart
The British currency continued to appreciate against the US Dollar on Monday, making its way towards the 1.2550 level. On the hourly chart the 1.23 mark is likely to be the bottom floor, as it is bolstered by the 200-hour SMA today.
Hourly chart
Traders mostly bullish
Bulls retreated again, as 66% of traders are now long the Pound (previously 68%). The share of sell orders inched up from 52 to 54%.
A slightly less optimistic situation is observed elsewhere. For example, 57% of positions open at OANDA are currently long. This is more than the share of shorts (43%), barely sufficient for the sentiment to be called bullish. Similarly, sentiment at Saxo Bank is also bullish, with 54% of traders being long and 46% being short the Sterling against the US Dollar.
Spreads (avg, pip) / Trading volume / Volatility
Traders expect the Cable to keep falling
By the end of the next three months traders expect the Cable to fall under the 1.22 major level, as 53% of survey participants believe so. While the current price is around 1.23, the average forecast for April 24 is 1.2208. However, the 1.14-1.16 interval is now the most popular one, having 20% of the votes, while on the second place is the 1.18-1.20 price range, with 14% of poll participants choosing it. Furthermore, the 1.20-1.22 and 1.22-1.24 intervals were each chosen by 11% of the voters.