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
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
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.