Browsing: GBP USD Forecast

GBP/USD reversed directions last week. falling 1.4%. This week’s key events are GDP and Manufacturing Production. As well, parliament will vote on the Brexit withdrawal deal. Here is an outlook for the highlights of this week and an updated technical analysis for GBP/USD.

PMIs are key gauges of the strength of the British economy. Last week’s releases were soft, pointing to weakness in the construction and services sectors. Construction PMI dropped to 49.5, below the 50-level which separates construction and expansion. The February reading was the first time that the PMI has indicated contraction since March 2018. The turmoil over Brexit is at least partly to blame for the soft PMI, as clients re-evaluate whether to take on commercial projects in a time of uncertainty. Services PMI came in at 51.3, indicative of stagnation in the services industry.

In the U.S., February employment numbers were mixed. Nonfarm payrolls plunged to 20 thousand, much worse than the forecast of 180 thousand. Wage growth improved to 0.4%, above the estimate of 0.3%. The unemployment rate continues to sparkle, dropping from 4.0% to 3.8%.

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

  1. Consumer Inflation Expectations: Monday, tentative: Inflation expectations are useful for gauging the movement of actual inflation levels. The indicator improved to 3.2% in December, its highest level in more than 5 years.
  2. GDP: Tuesday, 9:30. This monthly release showed the economy contracted 0.4% in December, compared to an estimate of 0.0%. Will we see a rebound in the January release?
  3. Manufacturing Production: Tuesday, 9:30. The manufacturing sector remains under pressure, and manufacturing production has struggled, with five declines in the past six releases. The December reading of -0.7% was much weaker than the estimate of 0.2%.
  4. Parliament Brexit Vote: Tuesday, Tentative. Lawmakers will vote for a second time on Prime Minister May’s withdrawal agreement. If the deal is rejected, parliament will then vote on two matters – a no-deal scenario and extending Article 50, which would delay the Brexit withdrawal.
  5. Annual Budget Release: Wednesday, Tentative. The Chancellor of the Exchequer Phillip Hammond will present the new UK budget. This event, also known as the Spring Statement, will consist of new forecasts for the economy.  With Brexit just around the corner, any downgrade could spook investors and hurt the pound.
  6. RICS House Price Balance: Thursday, 00:01. The survey continues to show a greater percentage of surveyors reporting a price decrease in house prices. In January, 22% of surveyors reported a drop in prices, the highest level since 2012. This points to weakness in the housing sector.
  7. CB Leading Index: Friday, 13:30. This composite indicator, comprised of 7 indicators, dropped by 0.5% in December. We will now get the first reading for 2019.

GBP/USD Technical analysis

The pound tested the round number of 1.30 on Friday and ended the week at 1.3015 (mentioned last week).

Technical lines from top to bottom:

We begin with 1.3470, which was a swing high in early June.

The round number of 1.34 could provide further support. Further down, 1.3315 was a swing high in late June.

1.3375 was a high point in July. It is followed by 1.3300, which was the high point in September and also a psychologically important round number.

1.3217 was the high point of the pound rally in late January.

1.3170 was a swing high in early November. 1.3070 was a high point in mid-November. The symbolic number of 1.3000 provided support to the pair in late September.

1.2910 was a high point in late November and was tested in support last week.

1.2850 capped recovery attempts in late November.

1.2728 was active in the first half of January.

1.2616 is the final support level for now.

I am bearish on GBP/USD

The economy has been posting mixed numbers, and uncertainty remains high, as Britain and the EU bicker over Brexit. There will be plenty of drama in parliament next week, and if May’s withdrawal agreement is voted down, the pound could respond with sharp losses.

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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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