Tesco (LON: TSCO) share price has bounced back recently as investors cheer the planned and rumoured actions by the new British Prime Minister. The shares rose to a high of 257p, which was the highest level since August 26. It has jumped by more than 4% from the lowest level this month.
Tesco faces challenges
Tesco, the biggest UK retailer, has been facing numerous challenges as inflation bites and the British pound retreats. Sterling has crashed by more than 17% in 2022, making it one of the worst-performing currencies in the G7.
A weak pound has a direct impact on Tesco and other British retailers that rely on imports. It has made it significantly expensive to buy products from countries like Indonesia and China.
As a result, the cost of most items sold by Tesco has risen sharply. Data published last month revealed that the headline and core consumer inflation surged to the highest level in decades.
At the same time, while the UK unemployment rate has fallen, wage growth has been relatively slow. As a result, the company has seen the volume of retail sales drop. All these factors explain why Tesco share price has collapsed by more than 17% from its highest level this year.
Recently, however, the shares have rebounded as investors wait for more stimulus by the new Lizz Truss administration. She has promised to lower taxes and tackle the soaring energy prices. Analysts expect that she will spend over 200 billion to subsidise gas prices.
Other retail stocks like Marks and Spencer, Boohoo, Next, and Sainsbury’s have also rebounded. Still, analysts believes that this rally could be short-lived. For one, other costs will likely continue rising. For example, with interest rates rising, people will continue spending money on mortgages and other loans. As a result, analysts at Berenberg believe that discretionary spending will drop by over 25% this year.
Tesco share price forecast
The daily chart shows that the TSCO share price has been in a strong bearish trend in the past few months. It has crashed from the year-to-date high of 304p to the current 253p.
The shares have moved below the descending trendline shown in black. It has also moved to the 50% Fibonacci Retracement level. The MACD has also moved below the neutral point.
Therefore, the shares will likely continue falling as sellers target the key support at 220p. A move above the resistance level at 270p.
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