Sterling Surges as UK Retail Sales Outperforms

August 19, 2016

UK Retail Sales (YoY and MoM) and Core Retail Sales figures (YoY and MoM) in July, released earlier today, outperformed. Sterling strengthened across the board.

Retail sales (MoM) rose to 1.4% in July, from -0.9% in June, beating expectations of 0.2%.
Retail sales (YoY) rose to 5.9% in July, from 4.3% in June, beating expectations of 4.2%.
Core retail sales (MoM) increased by 1.5% in July, from -0.9% in June, beating expectations of 0.4%.
Core retail sales (YoY) increased by 5.4% in July, from 3.9% in June, beating expectations of 3.9%.

After the release of retail sales, GBPUSD surged from 1.3076 to the high of 1.3171, a 0.73% rise, hitting a one-week high. The major resistance level at 1.3100 was broken with strong bullish momentum, followed by 1.3140 and 1.3150. It is currently holding above the newly formed support level at 1.3150, forming a new uptrend line. Be aware of a pullback as the 4 hourly KD indicator is more than 80, implying it is overbought.

The downside support line is at 1.3150, followed by 1.3140, 1.3115 and 1.3100.
The upside resistance level is 1.3170, followed by 1.3180 and 1.3200.

As a whole, the series of first post referendum UK economic data released this week, was better-than-expected and has eased market concerns over the initial aftermath of Brexit.

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FOMC Minutes

The minutes for the FOMC meeting, released yesterday, resulted in the dollar weakening across the board.

Despite the robust growth in the job market in June and July, household spending and business investment remains weak.

Inflation is still below the Fed’s 2% target, due to the earlier drop in energy prices and lower prices for imported goods. Exports have declined as foreign demand subdued. The global economy has been subject to vulnerability and growth is still sluggish.

The Fed anticipates gradual rate hikes, yet the recent economic indicators have given mixed signals. As a result, the Fed takes a cautious stance on a rate hike by watching carefully the job market, inflation, and global economic growth. It is not impossible that rates be cut to zero in response to future large aftershocks.

As long as economic data remains mixed, we can expect patience from some Fed members before voting for further rate hikes.

The Dollar Index Future (DXY)

In the first five minutes after the FOMC announcement, the dollar index surged to 95.06 from 94.86, then pulled back sharply after testing the significant resistance at 95.00. Hitting the intra-day low of 94.47, a 0.62% fall. The downtrend support line was broken.

This morning the bearish momentum continued, by opening low, plunging to a lower low of 94.335. It is currently testing the major support level at 94.35. If it is confirmed broke through, the next support level is at 94.20 followed by 94.06 and 93.94.

The resistance is the 50% Fibonacci retracement level at 94.73, followed by the significant level at 95.00 and then 95.20. Be aware of a rebound, as the 4 hourly KD indicator is below 20, implying it is oversold.

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