GBP/USD defied gravity and worrying data to stay afloat, taking advantage of the weakness of the US dollar and eventually ended the weak and the highest levels since the Brexit vote. The upcoming week features the inflation report and retail sales numbers among other events. Will cable remain stable? Here are the key events and an updated technical analysis for GBP/USD.
The UK trade balance deficit expanded, various measures of consumption are slowing and the BOE reports a worsening debt situation. Nevertheless, the weakness of the dollar, mostly exposed through the report about China slowing or halting the buying of US Treasuries, helped stabilize GBP/USD. At the end of the week, a beat on US inflation was not enough for the dollar, that totally collapsed. Can this continue or will Brexit send the pound lower?
GBP/USD daily graph with resistance and support lines on it. Click to enlarge:
- Silvana Tenreyro speaks, Monday, 18:15. The External Monetary Policy Committee member will deliver a speech about the fall in productivity growth at the Queen Mary University and may provide us some insight about the Bank’s thinking ahead of the inflation report. Tenreyro is a relatively new member of the MPC.
- Inflation report: Tuesday, 9:30. Britain stands out among developed countries by suffering from elevated inflation. Year over year CPI surpassed the 3% threshold in the reading for November, above the 1-3% range. Rising inflation has already triggered a rate hike in November, but the BOE seems reluctant to make additional tightening given the uncertainty resulting from Brexit and the slowing economy. Another rise in this important report that concludes 2017 may force the BOE to rethink. CPI is forecast to tick down to 3% y/y. Core CPI stood at 2.7% and is now predicted to slip to 2.6%. The Retail Price Index was higher at 3.9% with no change expected now. PPI Input rose by 1.8% and a smaller rise of 0.8% is on the cards.
- CB Leading Index: Tuesday, 14:30. The Conference Board’s leading index dropped by 0.2% in October. This composite figure is based on seven economic figures, most of them already released. Nevertheless, it provides a wide view of the economy.
- RICS House Price Balance: Thursday, 00:01. The diffusion index published by the Royal Institution of Chartered Surveyors showed a perfect balance between price rises and increases in November. Given the recent reports about falling prices, the indicator could turn negative now: -1% is projected.
- Retail Sales: Friday, 9:30. The volume of retail sales surprised to the upside in November, rising by 1.1%. It is hard to see the positive trend extend into December. The reports by BRC, Visa, and various retailers point to weak Christmas shopping season. A fall of 0.8% is on the cards.
BP/USD Technical Analysis
Pound/dollar was pressured to the downside at some points during the week but the 1.3460 support level mentioned last week proved itself quite nicely.
Technical lines from top to bottom:
We start from higher ground this time. The very round level of 1.40 looms above. 1.3830 served as support after the break of the financial crisis. 1.3743 is the January 2018 high and should be watched.
The recent cycle high of 1.3620 serves as strong resistance. 1.3550 was the November peak.
1.3460 capped the pair in mid-December and serves as resistance. The round level of 1.33 is a key level of support, working as such around the same period of time.
1.3225 was the high point of September. It is followed by 1.3180, which capped the pair in July.
I remain bearish on GBP/USD
While the pound is showing a lot of strength, it is hard to see this continuing. The pound could eventually succumb to the pressure: internal and extenral political issures, inflation that is biting, a reluctant central bank and an economic slowdown.
Get the 5 most predictable currency pairs