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GBP/USD forecast a technical analysis ► review of the major events that will move the British Pound (Sterling), and especially pound/dollar (cable) during the week. Here is some general information. Scroll down for the latest GBP/USD outlook

Pound/dollar characteristics

GBP/USD is one of the most traded currency pairs in the world and certainly one of the oldest. The nickname “cable” originates from the fact that the exchange rate was transmitted over the telegraph cable between Great Britain and the USA.

Sterling/greenback trading is characterized by high volatility in comparison to some of its peers, where stop-loss orders are usually placed at wider margins.

Another characteristic of British pound trading is that the pair “front-runs” economic releases from the UK. We often see a strong market movement ahead of publication, either due to rumors, leaks or sheer nervousness.

The pound is a “risk” currency: when the global mood is positive, GBP tends to gain against the USD, albeit usually not at the same magnitude as commodity currencies. When doom and gloom return to markets, the pound is on the retreat.

Brexit 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 not only UK politics (the resignations of David Cameron, Nigel Farage, and Jeremy Corbyn’s struggles) but also Her Majesty’s currency. Brexit has sent Pound/USD to levels last seen in 1985. Post-Brexit GBPUSD forecasts vary by timeframe.

During the summer, the pair stabilized and “hugs” the 1.30 level after the Bank of England laid out its comprehensive stimulus package. Will the support by Mark Carney push the pound back up? Or is the deteriorating situation and the risk of recession in the UK set to trigger further interest rate cuts, Quantitative Easing, and downfalls of the currency?

The pound is recently torn by contradicting forces: the economic data which is actually better than expected (retail sales, inflation and even PMIs rebounded). On the other hand, talk of a “Hard Brexit“, aka, abandoning the single market, certainly weigh on Her Majesty’s currency.

Latest weekly GBP/USD forecast:

GBP/USD had an uneventful week, as the pair closed at 1.2176. There are 10 events on the schedule. Here is an outlook on the major market-movers and an updated technical analysis for GBP/USD.

In the US, durable goods orders were mixed. Advance GDP beat expectations at 2.9%, but the internals were mixed. UoM Consumer Sentiment dropped to its lowest level since September 2015 and missed expectations. In the UK, Preliminary GDP in Q3 edged lower to 0.5%, but this beat the estimate of 0.3%.

Updates:

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

gbpusd_-daily-chart-oct31-nov4

  1. Net Lending to Individuals: Monday, 9:30. Borrowing and spending levels are closely related, so this indicator is closely watched. The indicator improved to GBP 4.5 billion in August, above the forecast of GBP 4.0 billion. Little change is expected in the September report.
  2. Manufacturing PMI: Monday 9:30. The indicator continues to post readings in negative territory, indicative of a weak manufacturing sector. The past two readings have come in at -5 points, but the October report is expected to improve to -2 points.
  3. BRC Shop Index: Wednesday, 00:01. Carney will testify before the House of Lords Economic Affairs Committee in London. If Carney paints a pessimistic picture of the fallout from Brexit, the pound could lose ground.
  4. Nationwide HPI: Wednesday, 7:00. This indicator provides a snapshot of the level of activity in the UK housing sector. In September, the indicator dipped to 0.3%, matching the forecast. The forecast for the October release stands at 0.2%.
  5. Construction PMI: Wednesday, 9:30. The index improved to 52.3 points in September, easily beating the estimate of 49.1 points. The markets are predicting a slight drop in October, with a forecast of 51.9 points.
  6. Services PMI: Thursday, 9:30. Services PM has posted readings above the 50-level, pointing to expansion in the services sector. Little change is expected in the October release, with an estimate of 52.5 points.
  7. BOE Inflation Report: Thursday, 12:00. This quarterly release should be treated as a market-mover. With the falling pound helping to fuel higher inflation levels, the upcoming report will make for interesting reading.
  8. Official Bank Rate: Thursday, 12:00. The BoE had dropped broad hints about lowering interest rates, but higher inflation and decent UK numbers have been enough for the markets to predict that the bank will maintain rates at 0.25%. The MPC will release the vote pattern for the September rate decision, where the bank held rates. The markets are predicting that the vote for that decision was a unanimous 9-0 vote.
  9. Asset Purchase Facility: Thursday, 12:00. The BoE’s asset-purchase program is expected to remain at 435 billion pounds. The voting pattern at the September decision (which remained at 435 billion pounds) is expected to be a unanimous 9-0 vote.
  10. External BOE MPC Member Kristin Forbes Speaks: Friday, 14:45. Forbes will speak at a conference in Washington, D.C. A speech that is more hawkish than expected is bullish for the British pound.

* All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.2218 and touched a low of 1.2080, testing support held at 1.2130 (discussed last week). The pair then reversed directions and climbed to a high of 1.2272. GBP/USD closed the week at 1.2176.

Live chart of GBP/USD:

Technical lines from top to bottom

1.2620 was a cushion back in 1985.

1.2447 is next.

1.2130 remains busy and was tested in support. It is a weak line and could see action early in the week.

1.1943 has been the low point in the month of October.

1.1844 is the final support line for now.

I am neutral on GBP/USD.

The BoE may decide to leave the benchmark rate at 0.25%, and this would amount to a vote of confidence in the economy, which could help the pound move upwards. Still, the pound remains at low levels and could lose  more ground if this week’s PMIs don’t meet expectations.

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