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Jignesh Davda
GBP/USD

UK Retail Sales Reported Stronger Than Expected

The Office for National Statistics reported a 1% increase in retail sales in June which was well above the analyst forecast for a decline of 0.3%. This followed a decline of half a percent in the prior month.

All four sectors measured by the ONS showed growth. The Non-food sector contributed the greatest while Non-store retailing lagged. On an annual basis, sales rose 3.8% versus the analyst consensus for a rise of 2.6%.

Earlier in the week, retail sales in the United States also beat analyst expectations. Sales were reported to rise by 0.4% in June against the estimate for a rise of 0.1%. However, there was a slight downward revision for the prior month from 0.5% to 0.4%.

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Technical Analysis

GBP/USD found support near a spike low posted in the early year and is seen advancing. The recovery in the pair is aided by a weaker dollar as the trade-weighted dollar index (DXY) is moving lower for a second consecutive session.

I think it is worth keeping an eye on the dollar index here. DXY has struggled with resistance around 97.60 for about a year now. Although it did manage to get above the level in the second quarter, four other attempts since late 2018 have been met with sellers.

Tuesday bullish candle in DXY was quite strong, and as a result, it will probably take a move below 98.60 to encourage sellers to continue putting pressure on the greenback.

GBPUSD 4-Hour Chart

GBP/USD pushed above resistance at 1.2450 following the UK retail sales report. This was a level mentioned in yesterday’s forecast. It was prior support that held the pair higher last week. The breach above it has removed some of the strong downside momentum seen since the start of the week.

Some upside resistance is currently being tested at 1.2486. I see stronger resistance near the 1.2500 handle where a declining trendline comes into play. The trendline originates from a high set in late June.

Bottom Line

  • GBP/USD is bouncing from near the prior yearly low.
  • Downside momentum has faded as a result of the recovery.
  • Strong resistance is seen at 1.2506.
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