GBP/USD: Traders take a dark view of Black Friday sales

Despite some permabears’ fears, the sun did indeed rise this morning and the world most certainly didn’t end after the first interest rate hike from the Federal Reserve in nearly a decade. As we noted in our instant analysis, the decision was far from the “dovish hike” that many traders had been expecting; for what it’s worth, the median FOMC policymaker still anticipates increasing interest rates four times, or at every other meeting next year, though Fed Funds futures traders are more skeptical, only pricing in a total of two rate hikes, to around 1.0% by end-2016.

In-line with our not-as-dovish-as-anticipated forecast, we’ve seen the US Dollar Index rally back to 99.00, driving EUR/USD back to the mid-1.0800s and USD/JPY up to the mid-122.00s. Probably the biggest FX mover so far this week has been GBP/USD, which has shed over 200 pips from Monday’s open to trade near its 8-month low around 1.4900.

Interestingly, today’s drop has come despite a better-than-expected UK Retail Sales report, which jumped 1.7% m/m in November around the critical “Black Friday” pre-holiday shopping period. On a year-over-year basis, sales rose by a healthy 5%, and the previous month’s report was even revised higher. Although this is ostensibly bullish news for the UK economy and consumer, some analysts have noted that the seasonal adjustment may not fully account for the recent adoption of deep Black Friday discounts in Britain.

Traders seemed to share this doubt, as the solid reading did little to slow GBP/USD’s selloff. As we go to press, cable is changing hands in the lower 1.4900s, and has been consistently putting in lower lows and lower highs for nearly six months now. After the big rally in the first half of the year, the pair has carved out a clear rounded top pattern and the selling appears to be accelerating over the last month in particular. Meanwhile, the RSI indicator remains trapped below its own bearish trend line, confirming bears’ increasing aggressiveness.

Given the proximity of the 8-month low around 1.4900 and 78.6% Fibonacci retracement of the April-June rally at 1.4860, bears may push the pair down to test these support levels next. It’s worth noting that over the last six months, the prudent strategy has been for sellers to take profits shortly after GBP/USD hits a new low, then wait to sell rallies to 100-200 pips below the most recent high (1.5240 in this case).