GBP/USD – Pound Softens on Weak Retail Sales Report

The pound has posted losses on Friday, as GBP/USD trades in the mid-1.53 range in the European session. In the UK, Retail Sales came in at -0.3%, lower than the forecast. Public Sector Net Borrowing posted a strong surplus of GBP 9.4 billion, within expectations. The US will wrap up the week with just one release, Flash Manufacturing PMI.

British Retail Sales, a key indicator of consumer spending, contracted in January, with a reading of -0.3%. This missed the estimate of -0.1%, and marked the first contraction in four months. The pound softened on news of the weak reading. Meanwhile, Public Sector Net Borrowing posted a surplus of GBP 9.4 billion in January, close to the estimate of a GBP 9.5 billion surplus. This was a sharp improvement from the previous release of a GBP 12.5 billion debt.

There was excellent news out of the UK on Thursday, as Industrial Order Expectations climbed to 10 points, up sharply from the previous release of 4 points. This beat the estimate of 7 points, and marked a 6-month high for the manufacturing indicator. The strong release follows excellent employment numbers for December. Claimant Count Change came in at -38.6 thousand, while the unemployment rate dropped to 5.6%.

Key US indicators painted a mixed picture on Thursday. Unemployment Claims rebounded strongly with a sharp drop of 283 thousand, compared to 304 thousand a week earlier. This easily beat the estimate of 293 thousand. The news was not as good from the Philly Fed Manufacturing Index, which slipped to 5.2 points, down from 5.3 points and a third straight drop. The markets had expected a reading of 8.8 points.

On Wednesday, the Federal Reserve released the minutes of its previous policy meeting. The minutes were decidedly dovish in nature, as Fed policymakers raised concerns that a mid-year rate hike could hurt the economic recovery. The Fed also said it was worried about the impact of global events on the US economy, such as the slowdown in China and the Greek financial crisis. With US inflation at low levels, the Fed is not in any rush to raise rates, so speculation of a mid-year rate may have been premature.

GBP/USD for Friday, February 20, 2015

GBP/USD February 20 at 12:15 GMT

GBP/USD 1.5374 H: 1.5434 L: 1.5343

GBP/USD Technical

• GBP/USD was flat in the Asian session. The pair dropped sharply early in European trade, breaking below support at 1.5392. GBP/USD has since recovered some of these losses.
• 1.5282 is the next support level.
• 1.5392 has reverted to a resistance role and is a weak line. 1.5505 is stronger.
• Current range: 1.5282 to 1.5392

Further levels in both directions:

• Below: 1.5282, 1.5165, 1.5008 and 1.4873
• Above: 1.5392, 1.5505, 1.5642, 1.5786 and 1.5888

OANDA’s Open Positions Ratio

GBP/USD ratio is almost unchanged on Friday continuing the lack of activity which has marked the ratio since mid-week. This is not consistent with the pair’s movement, as the pound has lost ground. The ratio has a majority of long positions, indicative of trader bias towards the pound reversing directions and moving higher.

GBP/USD Fundamentals

• 9:30 British Retail Sales. Estimate -0.1%. Actual -0.3%.
• 9:30 British Public Sector Net Borrowing. Estimate -9.5B. Actual -9.4B.
• 14:45 US Flash Manufacturing PMI. Estimate 53.7 points.

*Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds