For a second straight week, GBP/USD recorded gains of over 1.0 percent. This week’s key events are PMIs for the construction and services sectors. Here is an outlook for the highlights of this week and an updated technical analysis for GBP/USD.
The pound continues to shine and touched a high of 1.3350 last week, its highest level since July. Prime Minister May’s dramatic announcement of another parliamentary vote on Brexit has galvanized the pound. May said that parliament would vote on the government’s withdrawal agreement no later than March 12. If lawmakers reject that proposal, they will vote the next day on two separate proposals – one on a no-deal Brexit, and the second on requesting the EU to extend Article 50 and delay Brexit past March 29. Investors are confident that this makes a no-deal scenario, which would be bad news for the British economy, more unlikely.
In the U.S., Advance GDP, which was released a month late due to the government slowdown, showed a gain of 2.6% in Q4. Although this was weaker than the 3.4% gain in Q3, it was well above the estimate of 2.2%. The better than expected reading can be credited to strong consumer spending and business investment. The U.S. economy continues to perform well, with a strong expansion of 3.1% in 2018. Even with the strong GDP release, however, it’s unlikely that the Federal Reserve will change its dovish stance.
GBP/USD daily graph with resistance and support lines on it. Click to enlarge:
- Construction PMI: Monday, 9:30. PMIs are important gauges of the health of the economy. The Construction PMI has been slipping, and fell to 50.6 in January, indicative of stagnation in the construction sector. The February estimate stands at 50.5 points.
- BRC Retail Sales Monitor: Tuesday, 00:01. The British Retail Consortium’s gauge of sales rebounded in January, posting a gain of 1.8% after two declines.
- Services PMI: Tuesday, 9:30. The services industry continues to struggle. Services PMI dipped to 50.1 in January, its lowest level since July 2016.
- Halifax HPI: Thursday, 8:30. The Halifax Bank of Scotland showed a sharp decrease of 2.9% in January, well below expectations. This marked the second decline in three months.
- GfK Consumer Confidence: Thursday, 00:01. The Bank of England’s survey of 2,000 consumers gained ground in Q4 2018 and reached 3.2%, rising from 3.0%. Will the positive trend continue in Q1?
GBP/USD Technical analysis
Technical lines from top to bottom:
With GBP/USD posting sharp gains last week, we start at higher levels:
1.3615 capped the pair in late 2017. 1.3470 was a swing high in early June.
The round number of 1.34 could provide further support. Further down, 1.3315 was a swing high in late June.
1.3375 was a high point in July. It is followed by 1.3300, which was the high point in September and also a psychologically important round number.
1.3217 was the high point of the pound rally in late January.
1.3170 was a swing high in early November. 1.3070 was a high point in mid-November. The symbolic number of 1.3000 provided support to the pair in late September.
1.2910 was a high point in late November and was tested in support last week.
1.2850 capped recovery attempts in late November. It is the final support level for now.
I am bullish on GBP/USD
The pound has gained momentum in recent weeks, as Brexit will again be in the headlines ahead of parliament’s vote on the withdrawal agreement. WIth the Federal Reserve in dovish mode, it’s unlikely that the Fed will raise rates before the second half of the year, making the greenback less attractive.
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