Browsing: GBP USD Forecast

GBP/USD posted considerable losses, erasing the gains seen the week before. The upcoming week has four releases, including GDP. Here is an outlook for the highlights and an updated technical analysis for GBP/USD.

UK PMIs were a mixed bag in December. Manufacturing remains strong, as the PMI accelerated to 57.5, up from 55.6 beforehand. This was the highest level since November 2017. Services PMI has slipped into contraction territory and came in at 49.4, below the neutral 50-level. Construction also remains in expansionary territory and came in at 54.6 points.

In the US, ISM PMIs reports pointed to accelerated expansion in December. Manufacturing PMI improved to 60.7, up from 57.5 beforehand. This beat expectations and was the highest reading since August 2018. Services PMI climbed to 57.2, up from 55.9 beforehand. This exceeded the estimate of 54.5 points.
Nonfarm payrolls was a disaster, as the economy shed 140 thousand jobs. The consensus estimate called for a gain of 60 thousand. There was better news from wage growth, which jumped 0.8%, up from 0.3% a month earlier. This was the strongest gain since April.

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GBP/USD daily graph with resistance and support lines on it. Click to enlarge:

  1. BRC Retail Sales Monitor: Tuesday, 00:01. This indicator looks at retail sales in BRC shops. In November, the indicator rose to 7.7%, its highest level in five months. The estimate for December stands at 5.9%.
  2. RICS House Price Balance: Thursday, 00:01. The index has shown strong improvement in recent months, pointing to a stronger housing market. The upcoming estimate is that 61% of reported surveyors will report an increase in house prices.
  3. GDP: Friday, 7:00. The monthly GDP report has been falling and came in at just 0.4% in October. Analysts are braced for a sharp contraction of 4.6% in November.
  4. Manufacturing Production: Friday, 7:00. The manufacturing sector remains strong and Manufacturing Production climbed to 1.7% in October, up from 0.2% beforehand. Another strong reading is projected for November, with a forecast of 1.0%.

GBP/USD Technical Analysis

Technical lines from top to bottom:

We start with resistance at 1.4029.

1.3860 is next.

1.3769 has held in resistance since May 2018.

1.3624 has switched to a support role after GBP/USD lost ground last week.

1.3502 (mentioned last week) is providing support.

1.3336 is next.

1.3243 is the final support level for now.

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I am neutral on GBP/USD

The US dollar is showing signs of stabilizing, but it’s unclear if the currency will rebound after months of decline. The UK economy is in for a tough time, as the UK is enduring its third Covid lockdown.

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GBP/USD Forecast and technical analysis ► preview of the main events that move the British Pound (Sterling), and especially pound/dollar (cable) during the week. Here are some general data. Scroll down for the latest GBP/USD outlook

Pound/dollar characteristics

GBP/USD is a major pair and certainly one of the first to emerge in modern trade. Its nickname “cable” originates from transmitting the exchange rate over the telegraph cable between the UK and the USA in the 19th century.

Above average volatility characterizes pound/greenback trading. In comparison to other major pairs, stop-loss orders are usually placed at wider margins.

Another tidbit of Sterling trading is that the pair “front-runs” economic publications from Great Britain. We usually see a significant market movement ahead of a release. Leaks, rumors, or sheer nervousness move GBP USD

The pound is a moderate “risk” currency. When the global mood is positive, GBP often gains against the dollar, albeit usually not at the same magnitude as commodity currencies. When markets become risk-averse, Sterling is on the retreat.

Brexit talks and GBP/USD

The biggest market mover of GBP/USD is the surprising decision of voters in the United Kingdom to leave the European Union. This unprecedented move shook up  Her Majesty’s currency. Brexit has sent Pound/USD to levels last seen in 1985 and despite the recovery, Sterling still suffers.

The economy did well in 2016, before and after the EU Referendum, but it slowed down in 2017. On the other hand, the weak pound pushed inflation above the rises in wages. The Bank of England decided to raise rates in November 2017 but clarified it is a one-off. Mark Carney and his colleagues foresee only two hikes in the next three years.

Brexit negotiations were deadlocked for quite some time, but fresh hopes help the pound stabilize. PM Theresa May may agree to pay the high “divorce bill” that the EU demands.

Latest weekly GBP/USD forecast:

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