Browsing: GBP USD Forecast

GBP/USD showed limited movement last week. The week starts with a bank holiday and there is just one event on the schedule. Here is an outlook for the highlights and an updated technical analysis for GBP/USD.

In the UK, the labor market staggered last week as unemployment claims rocketed to 856.5 thousand in April. This was much higher than the forecast of 675.0 thousand. Wage growth slipped to 2.4% in March, down from 2.7% a month earlier. The unemployment rate dipped to 3.9%, well below the estimate of 4.4 percent. Retail sales plunged 18.1% in April, worse than the estimate of -15.8 percent. Inflation sank to 0.8% in April, its lowest level since August 2016. In March, CPI came in at 1.5 percent. Manufacturing PMI came in at 40.6 in May, above the estimate of 35.1. This was stronger than the April reading of 32.6 points. Services PMI improved to 27.8 in May, up from 13.4 in April. Still, this points to sharp contraction.

In the U.S., construction numbers softened in April. Building Permits fell to 1.07 million, down from 1.35 million. Housing starts slowed to 0.89 million, down from 0.95 million. In March, the final read for Manufacturing PMI came in at 41.5 points, and the initial estimate for April came in at 39.8 points. A reading below the 50-level points to contraction.

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

  1. CBI Realized Sales: Tuesday, 10:00. The Confederation of British Industry’s gauge of sales was in free-fall in April, dropping all the way to -55 points. The previous reading was -3 points. We will now receive the April release.

Technical lines from top to bottom:

We start with resistance at 1.2532.

1.2420 (mentioned last week) is next.

1.2330 has some breathing room in resistance.

The round number of 1.22 is a weak resistance line.

1.2080 is providing support.

1.1944 has held in support since mid-March.

The round number of 1.18 is the final support level for now.

I remain bearish on GBP/USD

The British economy continues to struggle, as the country has been hit hard by the Covid-19 pandemic. The Brexit deadlock has complicated matters, with little progress to report between London and Brussels on the post-Brexit relationship between the UK and the EU.

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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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