UK Retail Sales Disappointment Places Focus on Next BoE Meeting; FTSE Headed for 5495 Support

Retail Sales data out of the UK created some volatility in forex and equity markets today, as the latest data showed that consumer spending came in at its slowest rate in over a year.  Part of the explanation for the weaker numbers is coming from the excessive rain that was seen in the region during the month of April, which kept potential consumers indoors and buying less footwear, clothing and gardening materials (the three product areas showing the biggest declines).

The Retail Sales figures track stores that have been open 12 months or more, and the total difference (on a yearly basis) showed a Sales drop of 3.3 percent.  This is the largest single month decline since the first quarter of 2011 but on the slightly positive side, stores open 12 months or less showed declines of only 1 percent.

While some analysts might be tempted to write off the report as a one time event, it should be kept in mind that earlier macro data showed that the UK has entered into its first double dip recession in 35 years and a great deal of focus will now be placed on the Bank of England and its members’ strategies to bring the economy back into recovery.  The next monetary policy meeting will hold special significance now and markets will be looking to see whether or not the Bank will decide to increase its bond purchase program, which is already valued at 325 billion GBP.

The main question will be whether or not the BoE is more concerned about stimulating the economy or meeting its inflation targets, as consumer price increase are still holding above the Bank’s target rate of 2 percent.  As far as the weak Retail Sales report goes, it could be said that the weather was a major factor, as the month of April registered the most rainfall since the data started being tracked in 1910 but the Sales drop is still significant and will make the next BoE policy decision (held on May 16) difficult to navigate.  Central Bank decisions tend to have a greater influence on currency prices, but any additional suggestion of economic stimulus will help push the FTSE 100 higher.

Technical Analysis:


 

The AUD/USD is continuing on its massive run lower and we have officially broken and closed below key Fibonacci support on a daily basis.  The recent break of 1.0160 is significant for the long term prospects of the pair, as all major support levels have been broken and MACD indicator reading show negative momentum.  Looking at the RSI, we can see that prices have plenty of room to extend to the downside, so the long term target is now see at 0.9860.

The FTSE 100 failed at some nicely defined resistance levels that coincide as both trend lines and Fib retracements and prices are now squarely focused on a retest of support at 5495.  Prices are likely to have some difficulty grinding through this level on first attempt, but the longer term prospects point to the downside and an eventual break looks to be in the cards.

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