Retail sales in the UK are expected to increase another 0.1% in December and the recovery in private consumption should support the pound by reducing the scope of the Bank of England to further expand its balance sheet. While the BoE sees inflation above the target on the political horizon, continuous improvement in household spending could stimulate faster growth in prices in 2013, and we could see the central bank policy change later this year when the United Kingdom out of a double-dip recession.
Recent economic development
While Lending Funding for the program is starting to make their way into the real economy, the expansion of credit to the private sector and the recent improvements in the labor market could lead to a report of high consumption, and a positive could trigger a more significant rebound in the exchange rate by reducing it for more quantitative easing. However, fears of another economic contraction and a slowdown in wage growth may encourage households to reduce their spending, and a further slowdown in private sector consumption could dampen the appeal of the pound while the monetary Policy Committee keeps the door open to expand its asset purchase program beyond the goal of 375 billion GBP.
Potential targets for price
Although we saw the GBPUSD threaten the upward trend from June, we maintain our bullish forecast for the pound-dollar pair closed as persistently above the 1.6000 figure. While the RSI continues to find a temporary support in the region of 41, the rebound from the lowest in 2013 (1.5954) could accelerate before the minutes of the BoE due January 23, and we could see the GBPUSD make another run at 1.6300 if the data constrain expectations for further easing.
How to trade this type of ad
Forecasts second consecutive retail sales in the UK encourage bullish for the pound sterling and a positive development could pave the way to a trade buyer of sterling while data are the growth prospects. Therefore, if spending rises 0.1% or more, we will need a green candlestick five minutes following the release to generate a buyer entry on two-lots of GBPUSD. Once these conditions are met, we will set the initial stop at the nearest medium or a reasonable distance from the entry, and this risk will establish our first objective. The second objective will be based on discretion, and we will move the stop on the second lot to the entry price once the first trade reaches its mark in order to protect our profits.
Conversely, a lower wage growth associated with the current gloom in the real economy could reduce consumer spending and poor consumption figure could trigger a selloff in the exchange rate because it hinders prospects growth and inflation. Therefore, if the sales report comes below market expectations, we will implement the same strategy for a trade sale of the pound-dollar (convert pounds to dollars) for the long position described above, just in reverse.