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UK Retail Sales Plunge But Pound Does Not Budge

Last updated 3/26/2009 5:59 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Geithner will ask for broad regulatory powers
• UK Retail Sales
• Equities higher in Asia but soft in Europe
• Oil at $53/bbl
• Gold at $938/oz.

Overnight Eco

• NZD Current Account -4.02B vs. -4.0 B
• AUD CB Leading Index -0.6% vs. -0.9% last
• JPY CSPI -2.60% vs. -2.50%
• EUR GfK German Consumer Climate 2.4 vs. 2.5 expected
• GBP Retail Sales -1.9% vs. -0.3%
• GBP Revised Business Investment -1.5% vs. -3.9% forecast

Event Risk on Tap

• USD Unemployment Claims
• USD Final GDP expected at -6.7%
• USD Final GDP Price Index expected at 0.5%

Price Action

• USD/JPY ramps up ot 9800 on stromg Asian equity close
• AUD/USD back above 7000 as risk appetite remains
• GBP/USD holds 1.4500 despite weak retail sales
• EUR/USD capped at 1.3600 as lackluster eco data weighs

UK Retail Sales printed much worse than expected coming in at -1.9% vs. -0.3% forecast as UK consumers faced with the worst labor market   conditions since the early 1980’s sharply cut their spending in February. The news was not totally surprising given the weakness in the overall UK economy and the steep drop in CBI March Distributive Trades survey yesterday.  

Still after a knee jerk move lower, cable held its ground in the aftermath of the release staying well above the 1.4500 handle.  The unit came under very heavy pressure after a failed Gilt auction yesterday with currency traders concerned that BoE quantitative easing program may require further capital and thus further currency dilution in order to prevent long term UK bond rates from rising.  

Cable’s impressive price action in the face of so much negative bad news  indicates  that the unit is a bit oversold for the time being. However, the preponderance of economic evidence suggests that UK fundamentals will deteriorate further.  GBP/USD has been propped up tonight in large part due to profit taking on the EUR/GBP cross and some active GBP/JPY buying, but given tonight’s dismal data a test of 1.4500 seems likely if dollar find even a mild bid during the North American session.  

Meanwhile the euro was under pressure for most of the night capped at the 1.3600 handle. German consumer confidence data printed at 2.4 vs. 2.5 forecast suggesting that demand in the Eurozone’s largest economy remains moribund. As we wrote earlier, “For now German confidence gauges, much like the rest of the economic releases from the country including the latest PMI reports and IFO survey all point to some stabilization albeit at very low levels. The question going forward is whether this batch of data represents a sustainable bottom and a possible base for recovery or simply a pause before the economic news becomes much worse.

The fear in the currency market is that Eurozone fiscal and monetary officials have been too passive providing too little stimulus to counteract the forces of economic contraction. If EZ economic data begins to deteriorate once again, those concerns will come true and the unit could unwind some of its recent gains.”

Stronger Dollar Neeed

Finally  turning to the North American session the currency market will get the final revision of Q4 GDP which is expected to contract by -6.6% versus -6.2% during the last reading. The consensus may indeed be correct in their dour assessment of US growth in Q4 of last year, but chances are that the dollar may ignore the news even if it is negative. Given the recent upticks in housing data and durable goods report, currency traders may view the Q4 data as the bottoming out point for the US economy and bid the dollar higher as the day progresses.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.