GBP/USD forms ascending triangle after upbeat UK retail sales data
- The GBP/USD has formed an ascending triangle pattern as investors react to the strong UK retail sales data.
- Retail sales jumped by more than 13% in June as the country reopened after the previous lockdown.
- The biggest risk for the UK is Brexit after the fifth round of talks ended with no deal in sight.
The GBP/USD pair rose slightly as upbeat retail sales numbers outweighed the concerns about a no-deal Brexit. The pair is trading at 1.2740, which is slightly higher than the intraday low of 1.2725. Meanwhile, the British pound index, which measures the performance of the sterling against peer currencies, is trading at 127.37.
UK retail sales rise
Retail sales in the UK rose sharply in June as consumers spent time shopping after the end of the lockdown. According to the Office of National Statistics, retail sales rose by 13.9% in June after rising by 10.6% in May. Analysts polled by Reuters were expecting the sales to rise by 7.5%. The sales dropped by 1.6% on a year on year basis.
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Meanwhile, the core retail sales, which excludes the volatile food and energy products, jumped by 13.5% in June after rising by 10.6% in the previous month. The sales rose by 1.7% on a year on year basis.
Sales in food stores rose declined by 0.1% but remained 5.3% higher than in February. That was because before the crisis, more people were stockpiling food items in anticipation of the national lockdown. At the same time, non-store retailing reached a new high in June. The volume of goods sold was 53.6% higher than what was sold in February.
Fuel sales increased by 21.5% in June after rising by 47.4% in the previous month while non-food stores rose by 45.5%. The latter sector was among the most affected because most stores were closed during the pandemic.
Brexit remains a key issue
The biggest concern about the UK economy and the GBP/USD pair is Brexit. In statements released yesterday, Michel Barnier warned that a trade deal between the EU and the UK is unlikely to be done by the end of the year.
He said that the UK was demanding a “near total exclusion” of European boats from its waters. Fisheries is a major issue considering that most fishermen in the EU catch their fish in UK’s waters. The EU has also accused the UK of accepting to the so-called “level playing field” rules. These are rules meant to ensure that UK and EU companies operate under the same regulations. A source told The Guardian:
“It is unfortunately clear that we will not reach in July the ‘early understanding on the principles underlying any agreement’ that was set as an aim.”
In a statement, Barnier, the senior EU negotiator said:
“Over the past few weeks the UK has not shown the same level of engagement and readiness to find solutions respecting the EU fundamental principles and interests.”
All this mean that the likelihood of a no-deal Brexit is real. While such a situation will be negative for both sides, the UK will be the bigger loser considering the volume of business it does with the EU.
GBP/USD technical forecast
The GBP/USD pair is trading at 1.2721, which is slightly below the intraday high of 1.2775. On the daily chart, the price is along the 61.8% Fibonacci retracement level. It is also above the 50-day and 100-day exponential moving averages and slightly below the important support at 1.2800. Additionally, the pair has formed an ascending triangle pattern. Therefore, the GBP/USD pair is likely to break out higher as bulls target the next resistance at 1.3000.