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UK Retail Sales Sparked Temporary Sell−off in GBP

Fri, Apr 20 2007, 11:01 GMT
by Johan Ditz Lemche

Saxo Bank

GBP traded higher on speculation that UK data would be higher than expected, but when the figures came out lower than forecasted monthly, GBP fell. EURJPY's heading for another weekly increase.

MAJOR HEADLINES – PREVIOUS SESSION

• SZ ZEW Survey (Apr) out at -3.5 vs. -20.5 expected.

• CA CPI MoM/YoY (Mar) out at 0.8%/2.3% vs. 0.6%/2.1% expected. Core CPI MoM/YoY (Mar) out at 0.3%/2.3% vs. 0.2%/2.3% expected.

• US Initial/Jobless Claims out at 339K/2531K vs. 320K/2510K expected.

• US Leading Indicators (Mar) out at 0.1% as expected.

• US EIA Natural Gas Storage at -46 vs. -48 expected.

• US Philly Fed (Apr) out at 0.2% vs. 2.0 expected.

• NZ Visitor Arrivals (Mar) at -1.0% vs. 6.6% prior.

• JN All Industry Activity Index (Feb) out at 0.9% vs. -0.3% expected.

• AU Conference Boeard Leading Index (Feb) out at 1.4% vs. -0.2% prior.

• AU Import/Export Price Index QoQ (1Q) out at -1.7%/0.0% vs. -1.0%/-0.3% expected.

• SZ PPI & Import Prices (Mar) out at 0.3%/2.4% vs. 0.3%/2.3% expected.

• UK Retail Sales MoM/YoY (Mar) out at 0.3%/4.8% vs. 0.5%/4.7% expected.

GBP

The British pound is heading for a very strong weekly session on back of the high PPI, CPI and the BoE minutes, where the voting members voted 7-2 for an unchanged rate on the last meeting. GBPUSD rallied through the 2.00 figure and has broken a significant trend line back from 1971, as seen on the graph below. We think the reason for the big gain in the GBP this week is beacuase most investors had reason to believe that since we did not see a hike through Easter, the CPI reading today would be relatively low. The big question is how the MPC will handle this in the upcoming months. The market for interest-rate futures have already prices in two additional hikes this year, but we have not recieved confirmation from the MPC, indicating that they expect a natural ease of inflation looking 3-6 months ahead. Confirming this view is the fact that BoE has been the only major Central Bank to use precausionary hikes looking back over the last two years giving reason to believe that a clear explanation is to follow. If not, GBPUSD could easily target 2.05 in the short run. Looking forward, we expect to see a hike on the May meeting, but we are not sure whether or not the decision will be unanimous.

Source: Bloomberg

Ahead of today's retail sales, we bought GBPCHF at 2.4153, targeting 2.4270 and 2.44 on the longer term. This trade is backed by the return of carry theme, confirmed by the low-yielders moving lower relatively to the high-yielders, eg. a higher EURJPY.

FX Orderbook

Note: the support/resistance levels used in the matrix’s of this document are levels derived from yesterday high, low and close. Reference in the text to other support/resistance levels will occur.

Published on  Fri, Apr 20 2007, 11:05 GMT