GBP/USD – Pound Gains on Weak US Retail Sales

The pound has posted gains on Wednesday, as GBP/USD is trading in the mid-1.52 range. On the release front, US retail numbers slumped badly, as Core Retail Sales dropped by 1.0%. Retail Sales also looked weak, declining by 0.9%. In the UK, CB Leading Index was unchanged, with a reading of -0.3%. As well, BOE head Mark Carney is testifying on the Financial Stability Report before the Treasury Select Committee in London. The markets will be looking for some comments about inflation levels, which continue to fall and are well off the BOE’s target of 2%.

British CPI, the primary gauge of consumer inflation, continues to soften. The index posted a gain of just 0.5% in December, down from a 1% gain a month earlier. This marked the indicator’s weakest gain since May 2000. Meanwhile, inflation in the fourth quarter was 0.9%, shy of the BOE’s forecast of 1.2% back in November. On Tuesday, BOE Governor Mark Carney said that inflation levels could continue to fall, and this could affect any decisions regarding an interest rate hike. It wasn’t long ago that a rate hike seemed imminent, but the dramatic drop in inflation has eased the pressure on the BOE, which could decide not to raise interest rates in 2015. The Federal Reserve, on the other hand, will likely raise rates in the second half of the year. If this divergence in monetary stance continues, market sentiment could sour on the pound in favor of the US dollar.

US retail sales caught the markets off guard, with sharp declines in the December readings. Core Retail Sales came in at -1.0%, while Retail Sales followed suit with a loss of 0.9%. Both key indicators recorded their worst showings since May 2010. Part of the sharp drop can be attributed to lower receipts at gasoline stations, as gas prices have fallen sharply in recent weeks.

US employment numbers have looked sharp, and the trend continued on Tuesday, as JOLTS Jobs Openings climbed to 4.97 million, easily beating the forecast of 4.86 million. This is the indicator’s highest level since January 2001. The strong employment numbers are a welcome result of the robust economy, as the deepening recovery fuels demand for more workers. The health of the labor market is an important component of any decision to raise interest rates, so upcoming employment releases will be under the market microscope as the Fed mulls when to raise interest rates.

GBP/USD for Wednesday, January 14, 2015

GBP/USD January 14 at 17:15 GMT

GBP/USD 1.5232 H: 1.5270 L: 1.5146

GBP/USD Technical

• GBP/USD was flat in the Asian session. The pair posted strong gains in the European session and put pressure on resistance at 1.5282. GBP/USD then reversed directions and gave up some of these gains. The pair is stable in the North American session.
• 1.5165 is an immediate support line.
• 1.5282 has weakened in resistance as the pound has posted gains.
• Current range: 1.5165 to 1.5282

Further levels in both directions:

• Below: 1.5165, 1.5008, 14873, 1.4781 and 1.4670
• Above: 1.5282, 1.5392, 1.5505 and 1.5644

OANDA’s Open Positions Ratio

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

GBP/USD Fundamentals

• 10:00 British CB Leading Index. Actual -0.3%.
• 13:30 US Core Retail Sales. Estimate +0.1%. Actual -1.0%.
• 13:30 US Retail Sales. Estimate +0.2%. Actual -0.9%.
• 13:30 US Import Prices. Estimate -2.7%. Actual -2.5%.
• 14:15 BOE Governor Mark Carney Testifies Before Treasury Select Committee.
• 15:00 US Business Inventories. Estimate 0.2%. Actual 0.2%.
• 15:30 US Crude Oil Inventories. Estimate 1.2M. Actual 5.4%.
• 18:01 US 30-year Bond Auction.
• 19:00 US Beige Book.

*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.