Another Drop in U.K. Retail Sales Would Confirm Pound Technical Outlook

[DailyFx]

U.K. retail sales are expected to fall for a second month as a slowing economy, rising inflation and a weakening labor market have weighed on consumers.






Fundamental Outlook

U.K. retail sales are expected to fall for a second month as a slowing economy, rising inflation and a weakening labor market have weighed on consumers. The 0.2% decline that is expected is following June's record 3.9% fall which could add to the current Sterling weakness. Technicals are calling for another leg lower for the pound. Yet, the minutes from the BoE's last meeting revealed that the central bank is concerned enough about inflation, which has been above its 3% threshold for the past three months, that a rate cut is unlikely by the end of the year. Although this could generate some pound support, consecutive months of at least 20,000 jobless claims could see consumer consumption decline more than expected, supporting the technical call for a short GBPUSD position.





Technical Outlook






We maintain that the drop that ended just below 1.0550 was probably a 4th wave correction. As such, expectations are for a new high (above 1.0726) to complete the advance from .9974. Longer term objectives are at 1.08. Look for a top and reversal near there. Coming under 1.0543 would require a reassessment of the situation.

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