Browsing: GBP USD Forecast

GBP/USD continues to show volatility. The pair gained one percent last week, erasing the losses from a week earlier. The upcoming week has three events. Here is an outlook for the highlights and an updated technical analysis for GBP/USD.

A strong CPI release sent the pound sharply higher on Wednesday. CPI rose to 0.5% in September, up from 0.2% beforehand. The core reading accelerated to 1.3%, up from 0.9%. Retail sales improved to 1.5% from 0.8%, easily beating the estimate of 0.0%. PMIs slowed in September. Manufacturing PMI dropped from 54.3 to 53.3, while Services PMI fell from 55.1 to 52.3 points.

In the US, jobless claims fell sharply to 787 thousand, down from 898 thousand beforehand. This was the lowest level since March, prior to the spread of Covid-19, which sent unemployment levels skyrocketing. Manufacturing PMI came in at 53.3, just shy of the estimate of 55.5 points. The Services PMI improved to 56.0, beating the estimate of 54.7 points. Both readings indicate expansion, above the 50-level which separates contraction from expansion.

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

  1. CBI Realized Sales: Tuesday, 11:00. The Confederation of British Industry sales volume report jumped to 11 in September, compared to -6 beforehand. However, the consensus for October stands at -2 points.
  2. BRC Shop Price Index: Wednesday, 00:01. This inflation gauge is limited to BRC shops. The index remains has posted two straight readings of -1.6%. Another reading in negative territory is likely in October. 
  3. Net Lending to Individuals: Thursday, 9:30. Consumers cut down on credit in August, as the indicator fell from GBP 3.9 billion to 3.4 billion. Analysts expect an improvement in September, with a forecast of 4.2 billion.                                                                                                                   

GBP/USD Technical Analysis

Technical lines from top to bottom:

We start with resistance at 1.3249, an important monthly line.

1.3113 (mentioned last week) is next.

1.3006 has switched to a support role after strong gains by GBP/USD last week.

1.2914 is providing support.

1.2811 is next.

1.2689 is the final support line for now.

I remain bearish on GBP/USD

The UK and the EU have been unable to reach a deal over Brexit, which could weigh on the British pound. As well, Covid-19 continues to hamper the British economy.

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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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