GBP/USD – Pound Rebounds on Excellent Retail Sales

GBP/USD has posted strong gains on Thursday, partially recovering from huge losses a day earlier. In the North American session, the pair is trading in the mid-1.56 range. On the release front, British Retail Sales was unexpectedly strong in November, climbing 1.6%. Over in the US, key releases were mixed. Unemployment Claims dropped to 289 thousand, beating expectations. The Philly Fed Manufacturing Index fell to 24.5 points in December, short of the estimate.

There was excellent news out of the UK on Thursday, as Retail Sales, the primary gauge of consumer spending, jumped 1.6%. This crushed the estimate of 0.3% and marked its best showing since February. On Wednesday, British employment data was mixed, as Claimant Count Change dropped by 26.9 thousand, easily beating the estimate of -19.8 thousand. However, the unemployment rate moved unexpectedly higher, edging up to 6.0%.

The pound took a hit on Wednesday after the Federal Reserve policy statement. Previous Fed policy statements have usually stated that the Fed would maintain low rates for a “considerable time”, but the December statement changed terminology, saying the Fed would be “patient” before raising rates. In a follow-press conference, Federal Reserve chair Janet Yellen was less ambiguous, saying that the Fed was unlikely to raise rates for the “next couple of meetings”. The markets took this to mean that a rate hike is in the works, but not before April. The pound was down sharply on the news, as GBP/USD dropped about 200 points on Wednesday.

British inflation levels were in the spotlight on Tuesday, as the UK released CPI as well as a host of other inflation indicators. CPI continues to lose ground, falling to 1.0% last month. This was its lowest level since 2002. Still, the key indicator was within expectations, as the estimate stood at 1.2%. The BOE released its Financial Stability Report, noting that although the sharp fall in oil prices should boost domestic growth, it could result in inflation projections missing their target. Lower inflation levels give the BOE some breathing room regarding a rate hike in 2015, which only a few months ago seemed like a sure bet. If the markets feel that the economy is not strong enough to weather a rate hike, sentiment could sour on the pound and the dollar could take advantage and move to higher levels.

GBP/USD for Thursday, December 18, 2014

GBP/USD December 18 at 16:35 GMT

GBP/USD 1.5674 H: 1.5674 L: 1.5549

GBP/USD Technical

• GBP/USD was flat in the Asian session. The pair posted strong gains in the European session and the pound continues to move higher in North American trade.
• On the downside, 1.5644 remains busy and has reverted to a support role after the pound’s gains. This line is weak and could face further action during the day. 1.5505 is stronger.
• 1.5717 is an immediate resistance level.
• Current range: 1.5644 to 1.5717

Further levels in both directions:

• Below: 1.5644, 1.5505, 1.5392, 1.5282 and 1.5165
• Above: 1.5717, 1.5864, 1.6000 and 1.6141

OANDA’s Open Positions Ratio

GBP/USD ratio is pointing to gains in long positions on Thursday, continuing the direction seen a day earlier. This is consistent with the movement of the pair, as the pound has posted strong gains. The ratio is pointing to a majority of long positions, indicative of trader bias towards the pound continuing to move higher.

GBP/USD Fundamentals

• 9:30 British Retail Sales. Estimate 0.3%. Actual 1.6%.
• 13:30 US Unemployment Claims. Estimate 297K. Actual 289K.
• 14:45 US Flash Services PMI. Estimate 57.1 points. Actual 53.6 points.
• 15:00 US Philly Fed Manufacturing Index. Estimate 26.3 points. Actual 24.5 points.
• 15:00 US CB Leading Index. Estimate 0.6%. Actual 0.6%.
• 15:30 US Natural Gas Storage. Estimate -61B. Actual -64B.

*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.