Article by ForexTime
UK retail sales for June came in weaker than expected, putting a dent in sterling. Sterling is testing the $1.70 level, and break below would likely see a test of the $1.6950 low from late June. The EUR/GBP was hit even harder as the Euro rallied on the back of stronger than expected PMI data.
Headline sales rose 0.1% month over month vs. 0.3% consensus, while sales ex-autos dropped 0.1% month over month vs. expectations for a 0.3% rise. Real sector data which includes sales, IP, and construction have been softening recently, so despite the higher than expected CPI reading for June, markets may be reconsidering expectations for early BOE tightening.
The retail sales data is in contrast to the trade data, which was released on Wednesday. U.K. trade survey surged in July. The U.K. CBI distributive trades survey came in much stronger than expected, with the reading for realized sales in July jumping to 21 (median 12) from 4 in the previous month. The reading for expected sales in August rose to 36 from 17 in the previous month. Very strong numbers, should have spilled over into the consumer but as seen with today’s retail sales report, was not the case.
Eurozone Jul PMI readings came in much better than expected, with the manufacturing reading unexpectedly rising to 51.9 from 51.8 and the services reading jumping to 54.4 from 52.8, which lifted the composite reading to 54.0 from 52.8. Expectations had been for modest corrections but a very strong services sector reading, which was reflected in both German and French numbers helped to compensate for the renewed decline in French manufacturing confidence.
The unexpected acceleration in overall economic activity supports the ECB’s view that the recovery remains intact, even if there are still some weak spots and will only back the current wait and see stance, with hopes of quick QE fading. Bund futures headed south on the better than expected number, while the EUR reached session highs.
Free Reports:
Sterling is poised to test support levels near 1.6950 as momentum continues to point to a lower exchange rate. The MACD (moving average convergence divergence) index is printing in negative territory with a downward sloping trajectory. The RSI (relative strength index) has also moved lower with price action reflecting accelerating negative momentum while printing near 44 which is on the lower end of the neutral range.
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