Browsing: GBP USD Forecast

GBP/USD had its first losing week in almost two months, as the US dollar rebounded. The upcoming week has five releases, including PMIs. Here is an outlook for the highlights and an updated technical analysis for GBP/USD.

UK employment numbers were stronger than expected. Unemployment claims fell by 20 thousand, the first drop in three months. Wage growth continues to accelerate and hit 4.7% in December, up from 4.1%. The unemployment rate remained unchanged at 5.1%. At a parliamentary hearing, BoE policymakers said they did not expect inflation to shoot above the bank’s 2% inflation target

In the US, Fed Chair Powell had a dovish message for the markets in his testimony before Congress.  Second-estimate GDP for Q4 came in at 4.1%, revised upwards from 4.1%. There was positive news from Durable Goods reports, with strong acceleration in January. The headline read jumped 3.4% while Core Durable Goods rose 1.4%.

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

  1. Manufacturing PMI: Monday, 9:30. Manufacturing remains in expansionary territory, and the forecast of 54.9 for the second estimate is expected to confirm the initial estimate.
  2. BRC Shop Price Index: Wednesday, 00:01. This inflation gauge is limited to reports from BRC shops. The January read showed a decline of 2.2%, its sharpest contraction in 8 months. We now await the February data.
  3. Services PMI: Wednesday, 9:30. The Services PMI has been moving higher and is close to the 50-level, which separates contraction from expansion. The final release is expected at 49.7, which is expected to confirm the initial estimate.
  4. Construction PMI: Thursday, 9:30. The Construction PMI is expected to accelerate to 51.1, up from 49.2 beforehand. This would point to slight expansion. 
  5. Annual Budget Release: Wednesday, Tentative. The Chancellor of the Exchequer Rishi Sunak will present the new UK budget. This event, also known as the Spring Statement, will consist of new forecasts for the economy. The Covid vaccine campaign has gone very well, and the government has introduced a timetable to lift health restrictions. Any unexpected positive news in the budget will be bullish for the pound.

Technical lines from top to bottom:

We start with resistance at 1.4290.

1.4163 has held since April 2018.

1.4084 is next.

1.3917 is an immediate support level.

1.3808 is protecting the round number of 1.3800.

1.3687 (mentioned last week) is the final support level for now.


I remain bullish on GBP/USD

The UK vaccine rollout has been a success story and the government has implemented a timetable to lift health restrictions, which will improve economic conditions. In the US, the Biden stimulus package, which is now on its way to the Senate, will likely weigh on the US dollar when it is approved.

Further reading:

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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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