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GBP/USD Forecast a technical analysis ► review of the major events that  move the British Pound (Sterling), and especially pound/dollar (cable) during the week. Here is some general information. Scroll down for the latest GBP/USD outlook

Pound/dollar characteristics

GBP/USD is one of the most traded currency pairs in the world and certainly one of the oldest. The nickname “cable” originates from the fact that the exchange rate was transmitted over the telegraph cable between Great Britain and the USA.

High volatility characterizes sterling/greenback trading. In comparison to some of its peers, stop-loss orders are usually placed at wider margins.

Another characteristic of British pound trading is that the pair “front-runs” economic releases from the UK. We often see a strong market movement ahead of publication. Rumors, leaks or sheer nervousness move GBP USD

The pound is a “risk” currency. When the global mood is positive, GBP tends to gain against the USD, albeit usually not at the same magnitude as commodity currencies. When doom and gloom return to markets, the pound is on the retreat.

Brexit 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 not only UK politics (the resignations of David Cameron, Nigel Farage, and Jeremy Corbyn’s struggles) but also Her Majesty’s currency. Brexit has sent Pound/USD to levels last seen in 1985. Post-Brexit GBPUSD forecasts vary by timeframe.

Contradicting forces are tearing the pound apart. The economic data came out better than expected (retail sales, inflation and even PMIs rebounded). On the other hand, talk of a “Hard Brexit“, aka, abandoning the single market, certainly weigh on sterling.

The triggering of Article 50 and the following announcement of a snap election sent the pound higher, but the economy is showing worrying signs. Brexit bites.

Latest weekly GBP/USD forecast:

GBP/USD remained pressured once gain even though some data points were OK. The upcoming week features the second read of GDP among other events. Here are the key events and an updated technical analysis for GBP/USD.

UK inflation data missed expectations, pushing back any potential rate hike in the UK. On the other hand, there were encouraging signs from the wage data and also retail sales. Fresh USD strength weighed on the pound early in the week. However, a risk-off sentiment and worries about delays in Brexit negotiations weighed on the pound. In the US, politics and the Fed minutes hurt the dollar, while retail sales supported it. Nevertheless, it seems that Brexit hurts more than Trump.

Updates:

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

  1. Rightmove HPI: Sunday, 23:01. House prices are cooling down in the UK and this is gaining more attention. The Rightmove indicator showed a modest rise of 0.1% in July.
  2. Public Sector Net Borrowing: Monday, 8:30. The level of borrowing by the government stood at a relatively high level of 6.3 billion pounds, worse than expected, showing a growing hole in the government’s coffers. A small rise of 0.4 billion is expected.
  3. CBI Industrial Order Expectations: Monday, 10:00. This Confederation of British Industry’s survey of 550 manufacturers fell short of expectations with a score of only 10 points, a drop from 16 beforehand. A score of 10 is projected once again.
  4. GDP (second estimate): Thursday, 8:30. According to the first release for Q2, the economy grew by 0.3% q/q, better than 0.2% seen in Q1, but much slower than the growth levels seen in 2016. This growth level will probably be confirmed in the second read.
  5. Business Investment: Thursday, 8:30. Business investment feeds into future growth and is measured on a quarterly basis alongside the GDP report. Investment has not been that inspiring of late. A drop of 0.1% is expected.
  6. CBI Realized Sales: Thursday, 10:00. Contrary to other indicators, this measure of the economy has been upbeat, jumping to 22 points in July. A drop could be seen now: a score of 15 points is forecast.

GBP/USD Technical Analysis

Pound/dollar started the week under  1.30 and challenged 1.2975 (mentioned last week). It then drifted to lower ground.

Technical lines from top to bottom:

1.35 was the post-Brexit high and remains the top level. It is followed by 1.3370 which capped the pair several times in 2016.

The 2017 high (so far) of 1.3270 is the next barrier. 1.3120 served as resistance twice in the summer of 2017 and remains important.

Below, 1.3050 is a double top as seen during the spring of 2017. 1.2975 awaits on the lower side of 1.30.

Further below, 1.2890 separated ranges on the way down. It is followed by 1.2820 and 1.2775.

I remain bearish on GBP/USD

The data released recently confirms the weakness in the data point that matters most: inflfation. It pushes any potential rate hike further away. The US dollar has its own troubles but the overall UK economy looks weaker.

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