A confident UK consumer could guide Pound Sterling to a second consecutive weekly advance against the Euro and the first weekly advance against the US Dollar since September.
- Pound to Euro exchange rate today (21-10-16): 1.1247, day's best rate: 1.1248, low: 1.1168
- Pound to Dollar exchange rate today: 1.2245, day's best rate: 1.2262, low: 1.2223
This week's recovery in Pound Sterling against the Euro and Dollar remains a fragile one, but a recovery nevertheless.
We are acutely aware that the cart could be overturned by some wayward headline out of the EU Leaders' meeting that raises the spectre of hard-Brexit once more.
However, should the recent calm persist then GBP could carry positive momentum into the close.
Sterling has been bouyed by a run of strong data including retail sales figures released on Thursday the 20th.
The data confirmed consumers are continuing to reach into their pockets but the headline retail sales figures did come in below analyst expectations:
- Retail Sales (MoM) (Sep): 0% versus 0.4% forecast by economists
- Core Retail Sales (YoY) (Sep): 4% versus 4.5% forecast
But, the previous month’s annual retail sales reading was upgraded to a whopping 6.6% while core YoY retail sales for August was also upgraded to 6.2%.
With those kind of data preceding it I would have thought managing to maintain the pace into September would have been a pretty decent outcome.
"Consumer spending stagnated in the month of September including and excluding autos," says Kathy Lien at BK Asset Mangement. The problem with this view is that it fails to take into account the blistering underlying trend. A 4% advance on the previous month's 6.2% is staggering.
Indeed, quarterly growth rose to 1.8% in Q3, up from 1.1% in Q2.
"Subdued overall sales growth in September is perhaps not too surprising given that some fall-back from July’s strength had always looked likely. Moreover, the quarterly growth rate, at 1.8% in Q3, was higher than Q2’s 1.1% rise and the biggest increase since Q4 2014," says Paul Hollingsworth at Capital Economics.
As the above shows the UK consumer is certainly still looking bullish.
“After going backwards in August, Chancellor Philip Hammond will be pleased to see UK retail sales improve in September and move back towards growth,” says Dennis de Jong at UFX.com. “With the busy Christmas period rapidly approaching, Hammond will be hoping that shoppers forget the falling pound and hit the high street in their droves to help boost the economy.”
Technical Forecast for GBP/USD
Recent inflation and employment data in the UK have been robust, helping GBP/USD rally to important intra-day resistance in the 1.2325-35 region.
"This area has been tested on three occasions thus far, but has so far capped GBP strength. We see further consolidation as likely, with the USD and US yields on the back foot," says Robin Wilkin at Lloyds Bank.
Wilkin says the intra-day pivot support remains at 1.2225 region, with 1.2150-1.2090 range lows below.
"A push up through that resistance sees little in the way of resistance until the 1.2455-1.2515, Fibonacci and daily trend resistance zone," says the analyst.
Technical Forecast for EUR/GBP
Turning to the Euro vs Pound Sterling, Wilkin believes the recent break of range supports at 0.9020-0.9000 has seen the cross accelerate towards and test 0.8900-0.8880, but for now this daily trend support has held.
"We now expect further consolidation, with 0.8990-0.9000 resistance," says Wilkin, "while under there a deeper corrective decline can be seen, with a break of 0.8880 seeing little in the way of support till the 0.8750-0.8725 region."
The technical analyst says a move back through 0.9000 would commit us into an upper range trading environment with 0.9125-0.9150 the expected top of that range.