Soft Retail Sales Data Turns Euro Weak

Soft Retail Sales Data Turns Euro Weak
August 7, 2018


Lower than anticipated inflation, and trade related issues with the US turned the euro weak in July. Across the Channel, the Pound is strengthening because of strong inflation and improvement in the economy. The rate hike announced last week was very much on expected lines. However, it is considered to be a hawkish rate hike due to the facts presented below. Furthermore, the trade data and manufacturing PMI data also indicates that the Pound would move up against the Euro in the short term.

The Bank of England’s decision to hike rate by 25 basis points to 0.75% is not a surprise. However, the rate hike was approved by a 9-0 vote. This caught the markets by surprise. Analysts consider this as hawkish rate hike as it reflects the bank rate setting committee’s inclination for more rate hikes in the months to come.

The IHS Markit services PMI reported on Friday indicated a slight slowdown in the business activity. The index fell to 53.5 in July, from 55.1 in the previous month, and missed analysts’ expectations of 54.7. According to Tim Moore, associate director of IHS Markit, a combination of hot weather and World Cup caused a slowdown in business activities. So, as of now, it is not a matter of concern. Despite this minor issue, trade deficit narrowed to £7.70 billion in the first quarter, from £23.1 billion in the same period of 2017. Exports of UK goods and services increased to a record high of £620.20 billion.  

In the Euro zone retail sales recorded a growth of 0.3% in June, unchanged from the previous month. Analysts had expected the retail sales to grow by 0.4%. On an annualised basis, retail sales increased 1.2%, missing analysts’ expectation of a 1.4% growth. Therefore, hawkish rate hike and narrowed trade deficit is expected to turn the Pound strong against the Euro, which remains weak on soft growth in retail sales.

As the price chart indicates, the EURGBP pair is moving along the descending trend line. The accumulation/distribution indicator is making new lows. The currency cross has also broken below its 50-day moving average. Therefore, we are expecting the EURGBP pair to remain bearish in the short-term.

EURGBP - Technical Analysis - 7th August 2018

We are planning to use the analysis to establish a trade in the Forex and binary market. First, in the Forex market, we wish to open a short position near 0.8930. To negate risk, we would like to place a stop loss order above 0.8980. Once the short position is established, we would place a buy order near 0.8840 to book profits.

We may also use our surplus funds to invest in a put option offered by a reliable binary broker. Before acquiring the option contract, we will make sure the EURGBP trades near 0.8930. We also prefer a contract expiry date near August 15.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.



Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world

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