The bid tone on the British Pound has weakened after the UK Office for National Statistics (ONS) data released earlier today showed an unexpected drop in the retail sales month-on-month in June. The year-on-year retail sales growth also slowed down. Core retail sales ex-Fuel witnessed a contraction as well.
The drop in the retail sales, though an unexpected one, contradicts the biggest increase in total pay over a three-month period in June since April 2010. The UK CPI also fell back to 0% in June from 0.2% in May. Core CPI slipped back to 0.8% year-on-year, compared to the previous month’s figure of 0.9%. Moreover, the British Pound did not witness a sharp sell-off after the drop in CPI was reported earlier this month, since the markets were optimistic that it would have resulted in higher consumption. However, with a fall in retail consumption reported today, the GBP could be offered in the short-term. Now, the markets may also price-in the concerns regarding the strong Pound expressed by the BOE minutes released on Wednesday.
The British Pound appears vulnerable, especially against the Japanese Yen. The USD/JPY pair, on the charts, failed to take out 124.40-124.50 and fell to the current level of 123.80. A similar failure around 124.40-124.50 on two occasions in June was followed by at least 200-pip fall in the USD/JPY pair. Furthermore, the Japanese Yen stands to gain if the US corporate earnings continue to drag the major equity indices lower.
GBP/JPY: Eyes 191.76
The bounce back from the hourly 200-MA at earlier this week, followed by the failure to take out 193.90-194.00 and 4-hour closing below 193.30 (76.4% Fib R of 195.87-184.98) indicates the upside momentum is exhausted and the pair is likely to target 192.38 (200-MA on 4-hour) followed by 191.76 (61.8% Fib R of 195.87-184.98). The RSI indicator on the hourly and 4-hour time frame has turned bearish as well.
On the 4-hour chart, we also see the pair moving in a channel. Consequently, the lower end may act as a support, although break below 192.38 could be enough to enure the pair slides to 191.76.
On the higher side, only a daily close above194.00 could open doors for a target of 195.20-196.00
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