GBP/USD forms rounding bottom ahead of UK retail sales data

The GBP/USD pair made a strong comeback ahead of the upcoming UK retail sales numbers. The pair rose to a high of 1.2500, which was the highest point since May 5th. It has risen by about 2.8% from its lowest level this month.

UK retail sales data ahead

The GBP/USD pair rose sharply on Thursday as the US dollar recoiled. The closely watched DXY index declined by more than 1% as the CBOE volatility index retreated. It retreated against most currencies, including the euro, Swiss franc, and the South African rand.

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The next key catalyst for the GBP/USD will be the latest retail sales numbers that are scheduled for Friday this week.

Economists expect the data to show that the country’s retail sales declined sharply in April as inflation surged. Precisely, they expect these numbers to show that the headline retail sales declined from 0.9% in March to -7.2% in April. On a month-on-month basis, they expect the data to show that sales declined by 0.2%.

Meanwhile, excluding the volatile food and energy prices, analysts believe that retail sales declined by 8.4% in April. Recent data from the country’s biggest retailers like Tesco and Marks and Spencer show that sales have declined sharply.

Retail sales are important for the UK economy because they provide a gauge for consumer spending, which is an important part of the economy.

These numbers will come two days after the UK published strong consumer and producer inflation data. The data revealed that the country’s inflation surged to 9% in April, which was the highest level in over 40 years. Additional data revealed that the unemployment rate fell to a record low in April.

GBP/USD forecast

Turning to the two-hour chart, we see that the pair has formed a rounding bottom pattern that is shown in blue. In price action analysis, this pattern is usually a bullish sign. It has moved above the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has moved close to the overbought level.

The pair has also risen above the key resistance at 1.2485. Therefore, the outlook for the GBP/USD is bullish, with the next key resistance level being at 1.2600.

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