A Drop in U.K. Retail Sales Would Confirm Bearish Pound Technical Outlook

Fundamental Outlook

U.K. retail sales are expected to have declined for the second month in a row in October. Economists are predicting that consumer consumption drop 0.9% following a 0.4% decline the month prior. After remaining resilient through elevated levels of inflation Britons have started to retrench in the face of a looming recession and tight credit markets. September saw purchases of clothing and household goods decline which could lead to a unexpected rebound as those categories seldom drop for consecutive months. However, giving the dire straits of the U.K. economy, the most likely scenario that consumers' curbed spending across all categories. The dour fundamental data would confirm the technical outlook for further Pound losses. The Sterling failed to break through trend line resistance and the drop in domestic growth could send it below support, extending its current downward trending channel.

The British Pound/US Dollar pair remains in much the same situation as the rest of its forex trading counterparts, trading within a progressively narrower range through recent price action. It serves to note that the GBP/USD is currently challenging clear resistance at its multi-week downtrend line, and a break higher would signal that a move towards next noteworthy resistance at 1.5500 is likely. Short-term support comes in at the psychologically significant 1.5000, and a breakdown would instead imply that a drive to new lows is the more likely outcome.

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