British Pound (GBP) Outlook - Strong UK Sales Data Further Underpins GBP/USD

• UK retail sales beat expectations as the UK economy continues its post-pandemic bounce back.

• GBP/USD struggling to break 1.4200 with conviction.

The latest UK retail sales data beat already lofty expectations this morning as households continue to spend savings accumulated during the lockdown. According to the Office for National Statistics, retail sales grew by 9.2% m/m, twice as much as expected, while year-on-year sales surged by 42.4%, helped by base effects. Clothing sales reported strong growth of 69.4%, while non-food store sales rose by 25.3%.

GBP/USD has spent most of this week trying to make a clean break above 1.4200 but with little success. The pair have been aided by ongoing weakness in the US dollar – the US Dollar Basket (DXY) trades below 90.0 – but 1.4200 continues to thwart traders as they push for a new multi-year high above 1.4242. Sentiment remains bullish with the multi-month uptrend untroubled in recent weeks, while the three simple moving averages remain in a positive pattern. This weeks double-low at 1.4100 should remain supportive in the event of any end-of-week sell-off. Positive PMI data may give cable the nudge it needs to break higher.

Retail trader data show 35.26% of traders are net-long with the ratio of traders short to long at 1.84 to 1. We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/USD prices may continue to rise.Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBP/USD-bullish contrarian trading bias.

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