UK retail sales gives new life to the quid

And on she goes. 1.3172 the new high in GBPUSD as EURGBP tests 0.8600. Even I'm a little taken aback by this move but that's two data points that show the Brexit effect isn't so clear cut so soon after the vote.

People still need to shop, they need food, fuel, clothes, furniture, washing machines. They're still going out to eat and socialise. They're still doing home improvements, building extensions, doing the garden. This little part of the world didn't stop turning after the vote and a lot of people were predicting it would.

Is this the end of the story? Certainly not but these early indicators show that the UK didn't close down and disappear underground 5 minutes after the vote, and that's when we were likely to see the biggest reaction.

And so, we see somewhat of divide between business data and consumer data. Businesses are rightly worried as there is future risk for them. Consumers are just carrying on as normal. That's likely to be the case for firms going forward, it's from that that we'll see any trouble brewing on main street. If businesses start seeing a prolonged slow down that will put pressure on jobs and wages, and then spending. Wages will be the first place to look for signs of trouble, then jobs themselves. From that we'll need to then watch the consumer numbers because if people start worrying about their jobs, they'll tighten up spending.

The real Brexit effect is still a huge unknown and no one can predict the outcome. What we can do, with a great amount of certainty, is watch the signals that tell us if trouble is coming. I always say sentiment is a massive part of driving an economy and these sales numbers may change some doubts among businesses. If retail firms were worried before today, they may know be calmed and may not look to hold back as much as they might have been.

For the pound, it's not out of the woods just yet but a lot of recent shorts have been given a slap round the chops by this data. Cable has pulled up at the 5 Aug highs but might get a second wind as EURGBP ducks under 0.8600 (I've taken a small long down here with a tight stop just under 0.8580). For GBPUSD 1.3200 will be the next main sticking point, followed by 1.3220, 1.3245/50 and 1.3290.

Support will try to build somewhere up here (that's looking around 1.3150 right now) it will also need to be found at 1.3100 and 1.3080/85 if we are to maintain the upside.

GBPUSD H4 chart

Keep an eye also on EURGBP as if that holds below 0.8600 then further downside is likely.