GBP/USD – Pound Shows Volatility on Dismal Retail Sales Survey

GBP/USD is showing some movement on Tuesday, but remains unchanged on the day. Early in the North American session, the pair is trading at 1.2970. On the release front, British CBI Realized Sales plunged to -8 points, compared to a forecast of +8 points. In the US, we’ll get a look at CB Consumer Confidence, a key consumer indicator. The estimate for the September report stands at 98.6 points.

In the UK, CBI Realized Sales, a gauge of early retail sales for the month, indicated that retail sales dropped sharply in September. This surprised the markets, which had expected a strong gain. This has led to some volatility from the pound on Tuesday, as GBP/USD lost ground after the release but has since recovered. Although most third quarter numbers out of Britain have been better than expected, the markets remain jittery after Brexit, and any negative news could sour sentiment and weaken the pound, which remains under the 1.30 level. We’ll get a look at the GfK consumer confidence survey on Thursday, which has shown continuing pessimism from UK consumers, although there has been some improvement in recent readings.

The Fed stayed on the sidelines last week, holding interest rates at 0.25%. This was widely expected, but there was a surprise as three of the ten FOMC members dissented with the decision, preferring to raise rates immediately by a quarter-percentage point. This significant dissent within the FOMC underscores continuing divisiveness within the Fed, with one economist calling the Fed decision “one of the most decisive FOMC meetings in recent memory”. Recent comments from FOMC members regarding a rate hike have conflicted with each other, and the mixed messages have left the markets confused. The surprising level of dissent will do little to restore market confidence in the Fed, which back in December 2015 promised up to four rate hikes in 2016, but has yet to raise rates this year.

The Fed policy statement was generally upbeat and broadly hinted at a December rate hike. However, the markets can be forgiven for remaining somewhat skeptical, as the Fed has previously talked about a strong US economy and failed to follow up with a rate hike. Currently, a rate hike is priced in at 51 percent, but plenty can happen until the December policy meeting (the Fed is unlikely to make a move in November, just ahead of the US presidential election). The Fed has consistently stated that the next rate hike will be data-dependent, which means that stronger economic numbers, especially on the inflation front, will increase the likelihood of a December hike.

GBP/USD Fundamentals

Tuesday (September 27)

• 10:00 British CBI Realized Sales. Estimate +8. Actual -8.
• 13:00 US S&P/CS Composite-20 HPI. Estimate 5.0%
• 13:45 US Flash Services PMI. Estimate 51.1
• 14:00 US CB Consumer Confidence. Estimate 98.6
• 14:00 US Richmond Manufacturing Index. Estimate -2
• 15:15 US FOMC Member Stanley Fischer Speaks

*All release times are EDT

* Key events are in bold

GBP/USD for Tuesday, September 27, 2016

GBP/USD September 27 at 9:05 EDT

Open: 1.2966 High: 1.3008 Low: 1.2936 Close: 1.2967

GBP/USD Technical

• GBP/USD has showed volatility in the Asian and European sessions, but remains unchanged. The pair has posted losses early in North American session.
• 1.2899 is providing support
• There is resistance at 1.3033

Further levels in both directions:

• Below: 1.2899, 1.2778 and 1.2612
• Above: 1.3033, 1.3142, 1.3219 and 1.3327
• Current range: 1.2899 to 1.3033

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged in the Tuesday session. Currently, long positions with a strong majority (72%). This is indicative of trader bias towards GBP/USD continuing to move to higher ground.

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.