Here is the graph that compares the technical levels and retail sales forecast vs actual change for key GBP currency pairs:
Resistance Levels (orange bars): Indicating key resistance levels where the market could face upward pressure.
Support Levels (light blue bars): Showing potential support levels where the currency could find buying interest.
Forecasted Retail Sales Change (green dots): Representing the expected change in retail sales at -0.3%.
Actual Retail Sales Change (red dots): Representing the previous retail sales change of +1.7%.
1. Understanding Retail Sales M/M Data
The Retail Sales M/M (Month-on-Month) figure measures the change in the total value of goods sold at the retail level, excluding autos and fuel. It is a critical indicator of economic activity as it reflects consumer spending, which is a large portion of the economy.
A higher-than-expected retail sales result often indicates strong consumer confidence and spending, which can point to a growing economy. If the actual data shows growth, it might lead to strengthening of the GBP, as it would imply that the UK economy is robust and resilient.
A lower-than-expected result, on the other hand, points to a slowdown in consumer spending, signaling weaker economic growth, which can be bearish for the GBP. This could lead to downward pressure on the currency, especially if the result shows a negative change.
2. Fundamental Analysis: Key Expectations
Forecasted (-0.3%): The market is expecting a small contraction in the retail sales for the month of February-March 2025, which could be attributed to various factors, including inflation, cost-of-living issues, or seasonal fluctuations. A negative result would indicate weaker consumer spending.
Previous (1.7%): The previous month’s 1.7% growth indicates strong retail activity, which is very positive for the UK economy. A significant slowdown (from +1.7% to -0.3%) would be seen as a significant deceleration in economic activity and could be interpreted as a sign of broader economic concerns, including inflationary pressures, reduced consumer confidence, or external economic factors.
Given these expectations, here’s how the market could react to the upcoming data:
If Retail Sales Exceeds Forecasts (Better than -0.3%)
GBP Strength: A retail sales figure above 0% or a small positive number (e.g., +0.2% or higher) could lead to GBP appreciation. This is because traders would interpret it as a sign that the economy is still resilient, even in the face of potential global economic uncertainties.
Market Reaction: If the actual figure is better than expected, we could see the GBP strengthening across multiple pairs. A strong reading could spark an immediate surge in GBP/USD, GBP/JPY, and GBP/EUR. Traders may also start pricing in further confidence in the Bank of England’s potential for tightening policies.
If Retail Sales Matches Forecasts (-0.3%)
Neutral to Slight GBP Weakness: If the actual number is in line with the forecast and shows a mild contraction of -0.3%, the market could interpret this as an indication of softening consumer confidence. While it would not be a disaster for the UK economy, it may put downward pressure on the GBP.
Market Reaction: In this case, we could see moderate GBP weakness or even flat movement in GBP/USD and GBP/JPY. This would imply less urgency for the BoE to act on monetary policy, and investors may seek to avoid holding long positions in GBP.
If Retail Sales Disappoints (Worse than -0.3%)
GBP Weakness: A worse-than-expected result (e.g., a contraction of -0.5% or more) would be highly negative for the GBP, as it suggests that consumer spending is faltering. This could lead to concerns about broader economic growth in the UK.
Market Reaction: A weak retail sales report could push the GBP lower. In this scenario, we would likely see GBP/USD falling toward key support levels (discussed below), and GBP/JPY could experience sharp declines. If the market interprets this as a sign of weakening economic fundamentals, we could see a flight to safer assets like the USD, JPY, or CHF.
3. Technical Analysis of GBP Pairs
Now let’s look at the technical levels and currency pair expectations to see how the market could react depending on the Retail Sales M/M result:
GBP/USD (Cable)
Current Levels:
Resistance: 1.2450 (Key psychological level and prior highs)
Support: 1.2200 and 1.2000 (Major psychological support levels)
50-Day MA: Currently above the 200-Day MA, suggesting a bullish medium-term outlook.
Possible Scenario 1: Strong Retail Sales:
If the actual retail sales number comes in better than expected, we could see a break of the 1.2450 resistance and a potential push higher toward 1.2600 or even 1.2700. This would confirm the continuation of the bullish trend.Possible Scenario 2: Weak Retail Sales:
If the actual data confirms a negative change (below -0.3%), we could see a drop below 1.2200, with the next support at 1.2000. This would signal a bearish trend and potentially lead to a further sell-off in GBP/USD.
GBP/JPY
Current Levels:
Resistance: 167.00 (Key resistance point from previous highs)
Support: 164.00 (Next key level of support)
50-Day MA: Also above the 200-Day MA, showing bullish momentum.
Possible Scenario 1: Strong Retail Sales:
A positive result would likely push GBP/JPY above the 167.00 resistance, potentially targeting 169.00. A positive outlook for the UK economy could continue to support the pair in a risk-on environment.Possible Scenario 2: Weak Retail Sales:
A disappointing result could lead to a decline towards 164.00, or even further down if the bearish sentiment strengthens. Traders may start turning to safer currencies like the JPY in such a scenario.
EUR/GBP
Current Levels:
Resistance: 0.8750
Support: 0.8700 and 0.8600
Possible Scenario 1: Strong Retail Sales:
If UK retail sales surpass expectations, EUR/GBP could face downward pressure, possibly breaking below 0.8700 and heading toward 0.8600.Possible Scenario 2: Weak Retail Sales:
In the case of weak data, EUR/GBP might rise, testing resistance at 0.8750 and moving higher if the GBP weakness continues.
4. Risk Management and Trade Strategy
Given the volatility around such economic releases, here’s a suggested risk management strategy:
Set Tight Stop-Losses: Protect your capital by setting stop-loss orders just below key support levels for long positions and above resistance levels for short positions.
Trade with Small Positions: Given the potential for sharp price moves, consider trading with smaller positions to manage risk effectively.
Watch the Reaction: Be ready for potential whipsaw moves, where the market might initially react one way and then reverse course as traders digest the news.
5. Conclusion: Preparing for the Retail Sales Release
The upcoming Retail Sales M/M report on March 26, 2025, will have a significant impact on the GBP and could lead to sharp movements across major GBP pairs. Traders should be prepared for different outcomes, with the potential for the GBP to either strengthen if the data surprises to the upside or weaken if the results disappoint.
By keeping a close eye on key technical levels, monitoring the market’s reaction to the data release, and using proper risk management strategies, forex traders can take advantage of the potential price movements following this key economic event.