It was another relatively busy morning on the UK economic calendar for GBP/USD. Following UK inflation and private sector PMI figures, UK retail sales have caught the eye this morning.
UK retail sales raise red flags for UK economy and pound
Retail sales fell 0.5% in May, partially offsetting a 0.4% increase from April. Economists forecast a decline of 0.7%.
According to the Office for National Statistics,
- Food store sales fell 1.6% due to higher food prices and the cost of living.
- Automotive fuel sales volumes increased 1.1%, while non-food store sales were flat.
- In the three months to May 2022, retail sales fell 1.3% from the previous three months.
- However, sales volumes were up 2.6% from their pre-COVID-19 levels.
While the retail sales figures are unlikely to change the Bank of England’s view on inflation and monetary policy, a sharp shift in consumption could give the pound political uncertainty.
On Wednesday, Fed Chairman Powell spoke about the Fed’s commitment to bringing inflation back to its target at all costs.
Last Friday, the Bank of England’s chief economist, Huw Pill, discussed two areas that could lead the Bank of England onto a more aggressive rate hike path.
Pill told Bloomberg TV,
“If we see more and more evidence that the current high level of inflation is embedding itself in the pricing behavior of companies, in the wage-setting behavior of companies and workers, then that will be the trigger for this more aggressive action.”
Later this morning, members of the Bank of England’s Monetary Policy Committee, Huw Pill and Jonathan Haskel, are due to speak. After this week’s statistics, any opinion on the economy and the fight against inflation will have an influence.
At the time of writing, the pound was up 0.07% at $1.22665.
A bearish morning saw the pound drop to a low of $1.22403 before hitting a high of $1.22849.
GBP/USD left key support and resistance levels untested early on.
The Pound will need to avoid the $1.2241 pivot to target the first major resistance level at $1.2312.
A recovery in market risk appetite would support a break from Thursday’s high of $1.22946.
An extended rally would test the second major resistance level at $1.2366 and resistance at $1.24. The third major resistance level at $1.2490.
A drop through the pivot would bring into play the first major support level at $1.2187.
Barring an extended sell-off, the pound is likely to avoid sub-$1.2150 and the second major support level at $1.2116. The third major support level is located at $1.1992.
Looking at the EMAs and the 4 hour candlestick chart (below), this is a bearish signal.
At the time of writing, the Pound was sitting above the 50-day EMA, currently at $1.22645. The 50 day EMA has reduced to the 100 day EMA. The 100-day EMA retreated from the 200-day EMA: Pound Negative.
A move back to $1.23 would support a run to the 100-day EMA, currently at $1.23197, to put $1.24 into play.
Should GBP/USD fall below the 50-Day EMA, the Pound would likely test the first major support level at $1.2187.
The American session
Economic data is lighter, with finalized numbers on consumer sentiment from Michigan. Barring hardware revisions, the numbers are unlikely to move the dial.
However, after two days of testimony from Fed Chairman Powell, chatter from FOMC members would spark interest.