It has been quite the week for the UK.

Tuesday welcomed UK wage data, which fell less than expected and illustrated sticky inflation. Headline wages (including bonuses) dipped to 5.8% (expected: 5.6%; previous: 6.7%) in the three months to December 2023, and pay that excludes bonuses also fell to 6.2% (expected: 6.0%; previous: 6.7%). Wednesday saw the January UK CPI undershoot expectations and match December’s print; both headline and core measures on a year-over-year basis came in at 4.0% and 5.1%, respectively. Thursday’s Q4 2023 GDP data effectively tipped the UK into a technical recession; it was a miss across the board here. According to the preliminary estimate for Q4 (2023) growth, real GDP contracted more than expected at -0.3% as per the Office for National Statistics (ONS), versus -0.1% in Q3 and surpassing the estimate range low of -0.2%.

How to Trade UK Retail Sales?

Well, with wages higher than expected, along with CPI and GDP data revealing larger-than-expected misses, a miss on UK retail sales data tomorrow could spark another downside leg in sterling and lift FTSE 100 futures north.

From December to January, expectations heading into the event are for retail sales to show an increase of 1.5%, according to the Reuters poll (up from December’s fall of -3.2%), while the year-over-year measure is also expected to show an improvement to -1.4% from December’s reading of -2.4%. So, as we can see, forecasts suggest a meaningful recovery in retail sales; therefore, in order to pull GBP pairs southbound tomorrow, bears will be looking for data to remain weak (in negative territory on a monthly basis).

EUR/GBP Rebounds from Support

The Research Team touched on the EUR/GBP cross earlier this week and directed the technical spotlight towards a clear-cut daily support base, made up of a 100% projection ratio at £0.8498 and horizontal support from £0.8514.

Should a miss come to fruition, short-term H1 support from £0.8543-£0.8548 could hold ground and welcome bids and look to refresh highs beyond £0.8570 (blue oval). While it is obvious that sentiment has been to the downside for this market for quite some time now, knowing that price recently rebounded from daily support could encourage buyers.

Of course, a healthy UK retail sales print (stronger than median estimates) could have the EUR/GBP pair sell off sharply. H1 support would offer little and the move may even threaten current longs at the noted daily support.

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