- The share of sell orders remains unchanged at 52%
- 68% of all open positions are long
- Immediate resistance is around 1.2440
- The closest support is at 1.2270
- Upcoming Events: UK Public Sector Net Borrowing, UK's EU Membership Court Ruling, 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.
Uneventful Monday
Monday brings no important economic data releases both from the UK and the US. However, on Tuesday 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. The main event will still be the EU Membership Court Ruling, The UK's Supreme Court is to vote on whether the Brexit process could be initiated without the parliament's approval.
GBP/USD continues to edge higher
The Pound managed to end trade in the green zone on Friday, with the upper trend-line of the seven-month descending channel pattern limiting the gains. Today the British currency appears to have retained its post-inauguration strength, attempting to post more gains against the US Dollar. Another rally would imply a breach of the channel's upper border, suggesting that more GBP/USD strength is to follow. The immediate resistance area around 1.2440 is unlikely to hold the Cable from climbing higher, but the second cluster, formed by the 100-day SMA and the weekly R1, has a better chance of succeeding. The base case scenario, however, is a surge not further than 1.25.
Daily chart
The hourly chart somewhat supports the situation on the daily one. Here we have seen a broadening falling wedge pattern being broken to the upside, suggesting that more bullish momentum is to follow. This confirms the outlook of the daily chart, as the Cable is on the edge of exiting its descending channel pattern to the upside.
Hourly chart
Traders mostly bullish
Bulls keep losing numbers, are 68% of all open positions are now long (previously 69%). The share of sell orders remains unchanged at 52%.
A slightly less optimistic situation is observed elsewhere. For example, 63% of positions open at OANDA are currently long. This is more than the share of shorts (37%), barely sufficient for the sentiment to be called bullish. Similarly, sentiment at Saxo Bank is also bullish, with 61% of traders being long and 39% 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 23 is 1.2226. However, the 1.14-1.16 interval is now the most popular one, having 17% 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 1.16-1.18, the 1.20-1.22 and 1.22-1.24 intervals were each chosen by 11% of the voters.