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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:

GBP/USD ticked up a bit in the first week of 2018, enjoying the weakness of the dollar. Manufacturing output and the trade balance stand out in the upcoming week. Here are the key events and an updated technical analysis for GBP/USD.

Both the manufacturing and construction PMIs missed expectations, showing a potential for a slowdown. However, the services sector, which is the largest one, showed stability according to the PMI. In the US, the greenback drifted lower despite better than expected data and a balanced FOMC meeting minutes report.

Updates:

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

  1. Halifax HPI: Monday, 8:30. This highly-regarded measure of house prices beat expectations with a gain of 0.5% in November, extending the series of consecutive gains that began in July. A small rise of 0.2% is expected.
  2. BRC Retail Sales Monitor: Tuesday, 00:01. The British Retail Consortium’s gauge of retail sales advanced by 0.6% y/y in the data published for November, after a fall beforehand. We will now see the level of same-store sales change for December, the month of Christmas shopping.
  3. Manufacturing Production: Wednesday, 9:30. Manufacturing enjoys the weaker value of the pound that makes exports more competitive. Back in October, production increased by 0.1% and a 0.3% increase is projected now. The wider industrial output remained flat and is now forecast to rise by 0.4%.
  4. Goods Trade Balance: Wednesday, 9:30. In the past two releases, there was a surprising narrowing in the trade deficit, reaching 10.8 billion in October. Will it fall to single digits now? Expectations point to the other direction: a deficit of 11 billion.
  5. Construction Output: Wednesday, 9:30. Contrary to the manufacturing sector, the construction one has been squeezing. A drop of 1.7% was seen in October, the second drop in a row. An increase of 0.5% is predicted.
  6. NIESR GDP Estimate: Wednesday, 13:00. The National Institute of Economic and Social Research publishes its estimate for GDP growth in the past three months. In the three months ending in November, NIESR showed a rise of 0.5%. We will now get the data for the whole of Q4, ahead of the official release.
  7. BOE Credit Conditions Survey: Thursday, 9:30. This quarterly report about credit conditions provides an assessment of activity in the economy. In the report for Q3 showed a slight increase in the availability of credit.

BP/USD Technical Analysis

Pound/dollar made a move towards the 1.3615 level (mentioned last week) but didn’t manage to break that line. It then drifted back down to range.

Technical lines from top to bottom:

The recent cycle high of 1.3620 serves as strong resistance. 1.3550 was the November peak.

1.3460 capped the pair in mid-December and serves as resistance. The round level of 1.33 is a key level of support, working as such around the same period of time.

1.3225 was the high point of September. It is followed by 1.3180, which capped the pair in July.

1.3080 worked as support in mid-October and also was weak support during November. 1.3030 is the bottom of the range, cushioning cable in October and also in early November.

I remain bearish on GBP/USD

Once again, the pound enjoyed the weakness of the dollar more than its own strength, but this was only enough to hold its ground. We could see some reckoning now.

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