Sterling Resolute After Fiscal Statement, UK Retail Sales

GBP/USD News and Analysis

• Upbeat retail sales (MoM) overshadowed by continuing declines in volumes purchased
• GBP/USD remains elevated, above the 200 DMA but below the psychological level of 1.200
• Economic calendar appears to be rather light next week, providing little resistance to the current short term direction
• The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library

Upbeat Retails Sales (MoM) Overshadowed by Declines in Volumes Purchased

UK retail sales improved in October by 0.6% when compared to September. That statistic alone seems rather positive but year on year volumes decreased by a sizeable 6.1% compared to October of 2021.

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The ONS UK retail sales report showed food to be the major laggard for the October report, with volumes falling 0.4%. Positive readings via non-food stores, non-store retailing and food more than made up for it however.

The major issue facing UK consumers this year into next is a reduction in real household income, something that the Office for Budget Responsibility (OBR) forecasts will drop by 7% over the next 2 years – effectively placing households back to 2013 levels.

The chart below underscores the overarching retail trend of declining sales volumes ever since the peak in the spring of 2021, suggesting the holiday season is likely to be a more reserved one.

Source: ONS (Office for National Statistics)

GBP/USD Technical Considerations

The daily chart reveals a period of consolidation ahead of that psychologically important 1.2000 level, with what appears to be a bullish pennant forming. The pennant is usually viewed as a bullish signal, suggesting that a hold above 1.2000 could mean further joy for the pound against the dollar. In such an event, the true test of the potential bullish continuation would be a hold above 1.2000 after a retracement which could see the next zone of resistance 1.2300 come into focus.

Trendline support (prior trendline resistance) underpins cable, followed by the 2016 low of 1.1685 and 1.1410.

GBP/USD Daily Chart

Source: TradingView, prepared by Richard Snow

GBP/USD:Retail trader data shows 43.59% of traders are net-long with the ratio of traders short to long at 1.29 to 1.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/USD prices may continue to rise.

The number of traders net-long is 4.15% lower than yesterday and 2.22% lower from last week, while the number of traders net-short is 3.81% lower than yesterday and 2.32% lower from last week.

Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/USD trading outlook.

The economic calendar is rather light next week, with US durable goods, Michigan consumer sentiment and the FOMC minutes the only high level scheduled risk events for the week.

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX