GBP/USD holds above 38.2% Fib ahead of the UK retail sales release

GBP/USD did fail at the resistance offered by the trend line sloping downwards from Aug 2015 high and May 2016 high, but the subsequent losses have been capped around 1.3006 - 38.2% Fib R of 1.2812-1.3126. 

Focus on UK retail sales

The UK consumer spending as represented by the retail sales is seen rising 0.4% in June as opposed to a 1.2% drop seen in May. Retail sales ex fuel is seen rising 0.5% compared to 1.65 drop registered in May. 

June had ‘perfect conditions for retailers’ - BRC

The British Retail Consortium (BRC) data released earlier this month showed a 1.2% rise in retail sales in June. The BRC said June had the "perfect conditions" for retailers. Non-food category registered a pickup in sales.

Going by the BRC numbers, one may expect the official retail sales figure to print on the higher side of the estimates. However, Visa’s consumer spending index shows consumer spending declined almost to a four year low in the second quarter of 2017, largely due to a drop in the spending on non-essential items.

GBP/USD could retake 1.31 handle if the retail sales figure beats estimates and shows a pickup in the retail sales - non-essential category. Sales of essentials - food items are seen rising owing to higher inflation. 

GBP/USD Outlook

The spot was last seen trading around 1.3030 levels. 

FXStreet Chief Analyst Valeria Bednarik writes, “From a technical point of view, the Intraday picture is neutral-to-bearish, as the pair developed below its 20 SMA, whilst the Momentum indicator remains horizontal, right below its mid-line, whilst the RSI indicator heads marginally lower within neutral territory.”

Kathy Lien from BK Asset Management sees GBP/USD falling below 1.30 levels if the retail sales miss estimates. She writes, “Ever since Governor Mark Carney suggested that rates could rise, the market started to doubt his hawkishness.  Softer data validated the market's scepticism and if retail sales also miss, GBP/USD will find itself well below 1.30. This retail sales report will determine how GBP trades for the rest of the week and the move that transpires will have continuation.”