Forex Trading Guide: U.K. Retail Sales Report (September)

What’s up, forex buddies? Are y’all lookin’ for a potential market mover for the pound? If so, you’re in luck since the U.K. Office for National Statistics (ONS) is scheduled to release its retail sales report for September this Thursday at around 9:30 pm GMT, so make sure to mark your forex calendars for that event, alright?

What is this report all about?

For the newbie forex traders who are just tuning-in, the ONS releases a monthly report which details the current level of retail sales with regard to sales quantity or volume, as well as the total sales value. Retail sales readings are important to forex traders because they are the primary indicators for the level of consumer spending in an economy. And gauging the strength of consumer spending is of vital importance to both forex traders and policy makers because consumer spending is one of the main drivers of both inflation and economic growth.

What happened last time?

The retail sales report for August was a bit mixed since the headline reading came in as expected at +0.2%, which is good since it is an improvement over the previous reading, even though the previous reading was downgraded from +0.1% to flat at 0.0%. The year-on-year reading, meanhile, was a disappointment since it came in at +3.7%, which is lower than the expected +3.8% and the previous reading’s +4.1%.

Still, if you read my previous Forex Trading Guide, you probably weren’t too surprised by the actual readings since I mentioned that leading indicators were pointing to a potential monthly increase while the British Retail Consortium’s (BRC) retail sales monitor was pointing to a possible decrease on an annualized basis.

What’s expected this time?

For the upcoming September retail sales report, the general consensus among forex traders and market analysts is that the headline reading will be posting an improvement at +0.3% or +0.4%. The annualized reading, meanwhile, is also expected to advance by around 4.8%.

I’m not very confident that we’ll be seeing a lot of improvement, though, since the GFK consumer sentiment survey for September dropped to 3.0 points (7.0 previous), which is still in optimistic territory, but just barely. Most indices saw some slight decreases, with the “major purchase” index dropping by three points to 14.0. The “savings” index, meanwhile, actually saw a single point increase to 3.0, so it seems that Britons are spending less and saving more for the month of September.

The retail price index (RPI) for September also grew at a much slower rate (0.8% actual v.s. 1.0% expected, 1.1% previous), which could mean lower levels of demand, although it’s also possible that companies were passing on the lower costs to consumers, courtesy of the strong pound making imports relatively cheap.

Finally, the BRC’s retail sales monitor for September is also a bit disheartening since it printed a 1.9% decline for the month of September (-1.4% previous).

How might the pound react react?

As I mentioned earlier, August’s report was a bit mixed, and the headline monthly reading came in as expected, so there was no explosive knee-jerk reaction to the event. However, forex traders probably noted that the recent monthly reading was better than the previous one, and even though the yearly reading showed a slight slowdown, it still marked the 29th consecutive month of year-on-year growth, which is probably the reason why there were some follow-through buying across most pound pairs.

GBP/USD 15-minute Forex Chart (Sept. 17, 2015)

GBP/USD 15-minute Forex Chart (Sept. 17, 2015)

Of course, this was before the pound got hammered by, among other things, the revelation that the U.K. had the largest August deficit since 2012, which made forex traders (especially the interest rate junkies) doubt the timing of a Q1 2015 rate hike.

Anyhow, for the upcoming report, just remember that the pound usually has a knee-jerk reaction to the report relative to expectations, so a better-than-expected reading usually sparks a rally while a worse-than-expected reading usually triggers a sell-off. Also remember to take note of the previous reading since mediem to longer-term forex traders usually form their trading bias based on whether or not the current reading is better than the previous one.