Browsing: GBP USD Forecast

GBP/USD rebounded last week, climbing close to 1.0%. We could see some volatility early in the upcoming week, as the U.K. releases GDP, manufacturing production and employment data. Here is an outlook for the highlights of the upcoming week and an updated technical analysis for GBP/USD.

With the Brexit deadlock continuing to weigh on risk appetite, this week’s PMIs did little to comfort the markets about the health of the British economy. Manufacturing and services PMIs missed their estimates and came in at 48.6 and 49.4, which indicates contraction. The services PMI was stronger, with a score of 51.0. Still, this points to stagnation in the services sector. With the economic outlook uncertain, the pound could face further headwinds. GBP/USD had a d May, sliding 3.1%. It was the pound’s worst monthly performance since May 2018.

The week ended on a sour note for U.S. indicators, as employment numbers were soft. Nonfarm payrolls plunged to 75 thousand, down from 263 thousand a month earlier. Wage growth was unchanged at 0.2%, shy of the estimate of 0.3%.

Since raising the benchmark rate in December, the Federal Reserve has said that the next rate move could be in either direction. The markets have been much more dovish, pricing in a rate cut late in the year. This position was bolstered last week, after comments from Fed chair Jerome Powell and FOMC member James Bullard. Powell said that the Fed would “act as appropriate to sustain the expansion”, and analysts noted that he did not mention his “patient” approach to monetary policy, which has been a buzzword in Powell’s recent comments. Powell’s remarks echoed comments from Bullard, who stated that the Fed might have to lower rates shortly due to low inflation and the ongoing trade war with China. Bullard added that the current benchmark rate, which is at a range of 2.25% to 2.50%, is too high for current economic conditions, and recommended lowering rates in order to stabilize the economy.

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

  1. GDP: Monday, 8:30. The monthly GDP release is a useful gauge to track the quarterly GDP report. In March, the economy contracted 0.1%, its first decline since December. Another decline of 0.1% is expected, which could sour investors and send the pound to lower levels.
  2. Manufacturing Production: Monday, 8:30. This key manufacturing indicator has posted two straight gains of 0.9%, easily beating the estimates each time. However, the markets are braced for a sharp drop in April, with an estimate of -1.1%.
  3.  Employment Data: Tuesday, 8:30. These key events should be treated as market-movers. Wage growth slowed to 3.2% in March, and the downturn is expected to continue, with an estimate of 2.9% in April. Unemployment rolls are expected to increase by 12.3 thousand in May, down from 24.7 thousand in April. The unemployment rate is expected to remain at 3.8%.
  4. RICS House Price Balance: Wednesday, 23:01. The housing markets is showing signs of weakness, as a larger percentage of surveyors continue to report a drop in prices. The estimate stands at -21%, after a reading of -23% a month earlier.
  5. CB Leading Index: Friday, 13:30. The index, based on 7 economic indicators, came in at -0.5% in March. Will we see an improvement in the March release?

GBP/USD Technical analysis

Technical lines from top to bottom:

1.3170 was a swing high in early November.

1.3070 was a high point in mid-November.

The round number of 1.30 follows. 1.2910 (mentioned last week) is next.

1.2850 capped recovery attempts in late November.

1.2728 was active in the first half of January.

1.2660 remained relevant during the week. 1.2590 was a swing low in September 2017.

Lower, 1.25 is a round number and also worked as support in early 2017. Further down is 1.2420.

1.2330 is the final support line for now.

I am bearish on GBP/USD

The pound managed to capitalize on a broadly-lower U.S dollar, but this could be a temporary blip. The British economy is showing signs of strain, while the Brexit deadlock and political instability in the U.K. will likely mean headwinds for the pound.

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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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