Browsing: GBP USD Forecast

GBP/USD recorded another strong week, with gains of 2.5 percent. There are six events on the schedule, including the monthly GDP report. Here is an outlook for the highlights and an updated technical analysis for GBP/USD.

In the U.K., May PMIs remained well below the 50-level, which separates contraction from expansion. Final Manufacturing PMI came in at 40.7 in May, close to the initial read of 40.6 points. Final Services PMI pointed to a steep downturn in services, with a reading of 29.0. This was revised upwards from the initial reading of 27.8 points. Consumer confidence dipped to -36, down from -34 beforehand. This marked the lowest confidence level since January 2009.

In the U.S., ISM Manufacturing PMI improved to 43.1, up from 41.1 beforehand. The PMI has indicated contraction for three straight months, as the manufacturing sector has been hit hard by the economic crisis. The services sector also finds itself in contraction territory, as the ISM Non-Manufacturing PMI came in at 45.4 in May within expectations. Nonfarm payrolls shocked with a huge gain of 2.5 million in May, defying the estimate of -7.7 million. In April, the economy shed a staggering 20.5 million jobs. The unemployment rate fell to 13.3%, down from 14.7% beforehand. The forecast stood at 19.4 percent.

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

  1. BRC Retail Sales Monitor: Monday, 23:01. The British Retail Consortium gauge posted a gain of 5.7% in April, crushing the estimate of -15.0 percent. Will the upturn continue in May?
  2. RICS House Price Balance: Wednesday, 23:01. The Royal Institution of Chartered Surveyors survey in May showed 21% more surveyors reported a decrease in prices over those reporting an increase.  Another soft read is expected, with an estimate of 24% more surveyors reporting a decrease.
  3. GDP: Friday, 6:00. The British economy plunged 5.8% in March, as the economy buckled under the weight of the Covid-19 pandemic. Still, this was better than the forecast of 7.9 percent. Analysts are projecting a staggering -18.0% reading in April. If the economy does hit a double-digit decline, we could see the pound react negatively.
  4. Manufacturing Production: Friday, 6:00. After three straight gains, the indicator sank in March, with a reading of -4.6 percent. The estimate stood at -6.0 percent. Investors are braced for a free-fall in May, with a forecast of -15.5 percent, as the manufacturing sector appears in deep trouble.
  5. Consumer Inflation Expectations: Friday, 8:30. The indicator is closely watched, as inflation expectations can translate into actual inflation figures. The indicator dipped to 3.0% in Q4 of 2019, its lowest level since Q2 of 2018. We now await the Q1 data.
  6. CB Leading Index: Friday, 13:30. The Conference Board composite index uses seven different indicators. In March, the index showed a decline of 1.3%. Another slide cannot be ruled out in April.

Technical lines from top to bottom:

With the GBP/USD posting sharp gains last week, we start at higher levels:

The round number of 1.3000 has psychological significance. This line has held since mid-May. 1.2910 is next.

1.2850 has held in support since mid-March.

1.2728 was tested at the end of the week and could see further action early this week.

1.2616 switched to a support role after sharp gains by GBP/USD last week.

1.2420 (mentioned last week) has some breathing room in support.

1.2330 is the last support level for now.

I remain neutral on GBP/USD

The pound is at 11-week highs, but this is due more to U.S. dollar weakness than strength in the British economy. With grim economic conditions in the UK, we could see a downward correction from GBP/USD in the near term.

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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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