Trading the News:U.K. Retail Sales

What’s Expected:

Time of release:11/17/20119:30 GMT,4:30 EST

Primary Pair Impact:GBPUSD

Expected:-0.3%

Previous:0.7%

DailyFX Forecast:-0.2% to 0.2%

Why Is This Event Important:

U.K. retail sales are projected to fall 0.3% in October following the 0.7% advance in the previous month, and the drop in private sector consumption is likely to bear down on the British Pound as the development dampens the outlook for future growth. As the Bank of England casts a dour outlook for the economy, market participants see the central bank expanding its asset purchase program beyond the GBP 275B target, and the Monetary Policy Committee may carry its easing cycle into the following year in an effort to encourage a sustainable recovery. However, should private sector activity gradually gathers pace, a positive sales figure may prompt the MPC to talk down speculation for more easing, and the committee may preserve a wait-and-see approach over the coming months as the fundamental outlook for Britain improves.

Recent Economic Developments

The Upside

Release	Expected	Actual
Consumer Price Index (YoY) (OCT)	5.1%	5.0%
Net Consumer Credit (SEP)	0.4B	0.6B
Mortgage Approvals (SEP)	50.6K	51.0K

The Downside

Release	Expected	Actual
Average Weekly Earnings inc Bonus (3MoY) (SEP)	2.5%	2.3%
ILO Unemployment Rate (3M) (SEP)	8.2%	8.3%
GfK Consumer Confidence (OCT)	-30	-32

Easing price pressures paired with the expansion in private sector credit should help to prop up household spending, and a positive sale print may lead the British Pound to recoup the losses from earlier this week as market participants scale back expectations for more quantitative easing. However, the slowdown in wage growth paired with the ongoing weakness in consumer sentiment may drag on retail spending, and a dismal sales report is likely to weigh on the exchange rate as it casts a weakened outlook for the U.K. In turn, the GBP/USD may trade heavy over the remainder of the week, and the pair may come up against the 38.2% Fibonacci retracement from the 2009 low to high around 1.5680-1.5700 to test for near-term support.

Potential Price Targets For The Release

How To Trade This Event Risk

Expectations for a drop in retail sales highlights a bearish bias for the sterling, but a positive sales print could pave the way for a long British Pound trade as it instills an improved outlook for the U.K. Therefore, if spending unexpectedly increases from the previous month, we will need a green, five-minute candle following the report to generate a buy entry on two-lots of GBP/USD. Once these conditions are fulfilled, we will set the initial stop at the nearby swing low or a reasonable distance from the entry, and this risk will establish our first target. The second objective will be based on discretion, and we will move the stop on the second lot to cost once the first trade reaches its mark in order to protect our profits.

On the other hand, the ongoing weakness within the private sector paired with fears of a double-dip recession may weigh on consumption, and we may see Britons turn increasingly pessimistic towards the economy as the central bank casts a weakened outlook for the region. As a result, if spending weakens 0.3% or greater in October, we will carry out the same setup for a short pound-dollar trade as the long position laid out above, just in the opposite direction.

Impact that U.K. Retail Sales has had on GBP during the last month

Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event )	Pips Change (End of Day post event)
SEP 2011	10/20/2011 8:30 GMT	0.2%	0.7%	+40	+64

September 2011 U.K. Retail Sales

Retail spending increased 0.7% in September after contracting a revised 0.4% in the previous month, and the rebound in private sector consumption instills an improved outlook for the U.K. as it remains one of the leading drivers of growth. The breakdown of the report showed demands for household goods increased 3.2%, with sales at non-specialized stores advancing 1.4%, while discretionary spending on clothing and footwear fell another 0.7% after contracting 1.3% in August. However, the ongoing weakness in the labor market paired with the slowdown in wage growth may lead Britons to scale back on spending, and the Bank of England may take additional steps to stimulate the ailing economy in an effort to avert a double-dip recession. There appeared to be a delayed reaction to the retail sales report as the GBP/USD threaten 1.5700 following the release, but the sterling gained ground throughout the day as the exchange rate close at 1.5789.

--- Written by David Song, Currency Analyst

To contact David, e-mail This e-mail address is being protected from spambots. You need JavaScript enabled to view it . Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

Questions? Comments? Join us in the DailyFX Forum

View the Expo Presentation on ‘Trading the News’ For Additional Resources