UK Retail Sales Disappoints Market

A 0.3 percent decline in November retail sales completely disappointed the market which was looking for a 0.6 percent increase.

Pound depreciated against the dollar and the yen, in a day that the sentiment in financial markets was battered by ongoing concerns about the credit quality of some countries, especially Greece which its rating downgrade raised questions about the economic healthiness of the euro-area. However - and with all the regrets! - I take my profit by selling the pound against the dollar after the report.

50 pips Profit from the UK Retail Sales Surprise

I managed to make profit from the U.K. Retail Sales report on Feb 20. A 0.7 percent increase in January surprised the market which expected to see a 0.1 percent decline. I bought GBPJPY in minutes before the report. It was however more a gamble than a usual trade as I hold the position after the report.

10 Percent Profit on UK GDP Contraction

UK GDP (A) Contracted 1.5 percent, a little more than estimates. I made 10 percent profit with selling gbpusd three times before the GDP announcement. Pound was under pressure from the start of the week and I was asking myself that to what degree the negative news were priced.


1 - Opening the first position

2 - Opening the second position (with a conservative stop loss)

3 - One position automatically closed with 147 pips profit

4 - I closed the other with 124 pips profit

5 - Another position opened latter

6 - I closed it just minutes before the announcement with 105 pips profit

7 - End of the day

8 - GBPUSD in week

Case Study: Reaction to UK Retail Sales

MPC's minutes on Wednesday helped sterling to appreciate against major currencies when it showed that there was a vote for an increase in interest rate. It also showed that they want to have more data before any decision on changing the rate and it was when Retail Sales and GDP were ahead.

Retail sales in UK dropped the most in decades, -3.9 percent, and sterling depreciate in response. But I think the opportunity was missed well before the data:

• The best time for selling pound might be probably at the midnight of Central Europe, when technical data were increasingly showing divergence (e.g. RSI divergence and MACD crossover in GBPJPY chart).


• And before the release, some weak economic reports from euro-zone such as German IFO and Euro PMI in addition to this fact that more concerning data are ahead from US housing markets were a trigger to the market to buy back the Yen as reducing carry trading.

Buying EURUSD; Betting on a Victim

• Euro was a victim of a better than expected Retail Sales in UK, which was highest in almost two decades. Before that, Swiss National Bank cast shadow on possibility of interest rate rise in Switzerland as well as euro area, caused that demand for sterling increased so fast that makes liquidity problem in pound crosses, especially for GBPCHF and EURGBP, which finally translated in selling Euro against dollar.


• In addition, China announced that it is going to raise the price of gasoline, makes the oil price to drop more than 4 dollar; and it was not only another hit to euro but also the reason behind recent rise in US indexes.
  
• Today data from US was mixed. Philly Fed. Index dropped more than estimates when leading indicators increased 0.1 percent.


• I think all of them have priced so far and the market would start thinking about tomorrow German Producer Prices, which is expected to reinforce concerns on inflationary pressures in ECB's calculations.

In less than 30 minutes to the market close, I decided to buy EURUSD at 1.5496; as always I would increase the size if I see improvement in technical data.

Pound and tomorrow Retail Sales; How, When, What?

US indexes fell when dropping profit in financials firms replaced fears of inflation. The story doesn’t end at least for the British pound; Retail Sales is ahead and it is expected to show another decline in May.

How: Minutes of MPC in addition to CPI are sufficient to expect that the market has fully priced recent data and the upcoming data could be seen as a force against the current balance. When consideration of rate rise, as reflected in the BoE minutes, seems unable to support sterling, I think that another decrease in Retail Sales is just likely to add more concerns.

What: So, if the profit is in selling pound then the problem is to find something to buy. Morgan Stanley's today report just revived concerns on continuation of credit crunch, shaked market sentiment, and weakened dollar position; making a scene for buying Yen or Swiss Frank.

When: Swiss national bank is to set the rate in the next 12 hours, and selling GBPCHF would be more easy if technical conditions was somewhat better. Selling GBPJPY is another option; however any decision highly depends on improvement in Technical aspect.