Outlook Firmly in Favour of GBP as GBP/USD Smashes Through Important Resistance Level

UK Retail Sales: Another Eco-stat Winner

Following on from yesterday's positive employment stats fresh impetus has been granted to Sterling courtesy of UK Retail Sales data which came in 1.1 pct higher (MoM), well ahead of forecasts for 0.6 pct; year-on-year figures were at 3 pct vs expectations of 2.5 pct.

Retail Sales Ex-Fuel were at 3.1 pct YoY versus expectations for 2.7 pct.

Easy Forex point out that "GBP/USD breaks new monthly high at 1.5579."

US Dollar Declines

The dollar declined versus most of its 16 major peers after a US central bank official cautioned against excessive optimism over the economy.

St. Louis President James Bullard said yesterday policy makers should be careful in changing course based solely on their economic forecasts.

Ahead, economists predict a report today will show gains in U.S. consumer prices slowed last month (see details below).

Forecasts for the GBP/USD: "Sterling rally may only just be getting going"

The latest foreign exchange forecasts are in, and they are pro-Sterling.

Craig Erlam at Alpari UK says:

"The sterling rally may only just be getting going, rather than running out of steam, after the pair smashed through the the descending trend line, dating back to the start of the year.

"The aggressive move was assisted by the impressive retail sales figure, which was released at 9.30, but the level had been broken previous to this, and there’s been a lot of pressure on the trend line over the last week.

"The data just essentially ensured all the stops were taken out which propelled the pair higher. The 50 fib level is now providing significant resistance around 1.56, which could prompt a retest of the trend line, before we see a push towards those previous highs around 1.5750."

Geoffrey Yu at UBS says:

"Any downside will be limited, with a strong support at 1.5394. Key resistance is at 1.5598. A closing break above this would trigger further upside towards 1.5782."

Stuart McPhee at Oanda says:

"During the early hours of the Asian trading session on Thursday, the GBP/USD is continuing to rally a little higher from the short term support level at 1.55, after having previously surged higher to 1.5550 before retracing.    

"Since the middle of June the pound has fallen very strongly from the resistance level at 1.57 back down towards the long term key level at 1.50 and is now enjoying a solid recovery over the last month or so. Current range: Right around 1.5520."

Key data ahead for the US dollar

Turning to the US dollar (Currency:USD) element of the GBP/USD equation we see a busy day ahead.

In the US, Empire State manufacturing and Philadelphia Fed surveys for August are  scheduled for release this afternoon. Both are good indicators for the direction of the widely watched ISM manufacturing survey out in September.

"We expect the Empire State survey to reach 11, up from last months 9.46, representing the highest level in 15 months. Our forecast for 20.5 for the Philadelphia Fed survey, also represents an  improvement, up from last months 19.8. This would be the highest level for the Philadelphia Fed since April 2011. July US industrial production is also due for release and should point to an acceleration in activity. We forecast a rise of 0.5% m/m for July, compared with 0.3% rise in June," says Erlam.

July US CPI is also out today and we predict prices to have risen 1.9% from a year earlier, whilst core prices are expected be up 1.7%, the same as last month.