Browsing: GBP USD Forecast

GBP/USD posted slight gains last week. The upcoming week has four releases, including GDP. Here is an outlook for the highlights and an updated technical analysis for GBP/USD.

Strong UK employment numbers gave sterling a slight boost early last week. Wage growth jumped to 3.6%, up sharply from 2.7%. Unemployment rolls rose by just 7 thousand, well below the estimate of 47.5 thousand. The unemployment rate nudged up from 4.9% to 5.0%, its highest level since March 2016.

British Manufacturing PMI slowed to 54.1, down from 54.7. Still, the reading was above the neutral 50-level, which indicates expansion. Services PMI dropped sharply to 39.5, down from 49.4. This sharp contraction was due to the strict Covid lockdowns. Construction PMI fell into contraction territory for the first time since May, with a reading of 49.2. This missed the estimate of 53.0.

The Bank of England maintained interest rate and QE levels at its policy meeting. BoE Governor Bailey assured the markets that the BoE was not signaling that it planned to introduce negative interest rates, although the BoE did tell banks to be prepared for such a scenario.

In the US, ISM Manufacturing PMI dipped to 58.7, down from 60.7 beforehand. Still, this figure points to strong expansion, as manufacturing remains a bright spot in the US economy. The services sector grew for an eighth straight month in a row, as the ISM Services PMI improved to 58.7, up from 57.2 beforehand. This was the highest reading since February 2019.
U.S. Nonfarm Payrolls disappointed with a negligible gain of 49 thousand, which didn’t even reach the forecast of 85 thousand. Wage growth rose 0.2%, down from 0.8% beforehand. There was better news from the unemployment rate, which dropped from 6.7% to 6.3%, its lowest level since March.

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

  1. BRC Retail Sales Monitor: Tuesday, 00:01. Retail sales in BRC shops slowed to 4.8% in December, down from 7.7% beforehand. Will we see a rebound in January?
  2. RICS House Price Balance: Wednesday, Tentative.  The index has shown strong improvement in recent months, pointing to a stronger housing market. The upcoming estimate is that 60% of property surveyors will report an increase in house prices.
  3. Prelim GDP: Friday, 7:00. After the huge swings in GFP in the past two quarters, GDP is expected to show a negligible gain of 0.5%. An unexpected reading could affect the movement of GBP/USD.
  4. Manufacturing Production: Friday, 7:00. This indicator slowed to 0.7% in December, down from 0.7% beforehand. The downtrend is expected to continue, with an estimate of 0.5%.

GBP/USD Technical analysis

Technical lines from top to bottom:

We start with resistance at 1.4128, an important monthly line.

1.3917 is next.

1.3838 has held in resistance since May 2018.

1.3666 (mentioned last week) is the first support line.

1.3540 is next.

1.3470 has held in support since late December.

1.3327 is the final support level for now.

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I am neutral GBP/USD

The UK economy is being hampered by Covid lockdowns, while in the US, the Biden stimulus bill could be bearish for the US dollar.

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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