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GBP/USD Forecast and technical analysis ► preview of the major events that 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 a major pair and certainly one of the oldest. The nickname “cable” originates from the fact that the exchange rate was transmitted over the telegraph cable between the UK and the USA.

High volatility characterizes pound/greenback trading. In comparison to some of its peers, stop-loss orders are usually placed at wider margins.

Another characteristic of Sterling trading is that the pair “front-runs” economic releases from Great Britain. We often see a strong market movement ahead of publication. Rumors, leaks or sheer nervousness move GBP USD

The pound is a moderate “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, 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. Post-Brexit GBPUSD forecasts vary by timeframe.

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 has a dilemma amid the drop in standards of living.

The Bank of England has a dilemma amid the drop in standards of living. The pound recovered as the MPC hinted about a rate hike, but it could be a one-off event and may not be sustained.

Brexit negotiations seem deadlocked and could extend as the sides coalesce around a transition period. Nevertheless, the government is leaning towards a hard Brexit: more control and less trade and this could hurt the pound.

Latest weekly GBP/USD forecast:

GBP/USD dropped sharply last week, dropping 230 points. The pair closed at 1.2781, its lowest weekly close in four weeks. This week’s key events are Manufacturing and Construction PMIsHere is an outlook for the highlights of this week and an updated technical analysis for GBP/USD.  

The bombing in Manchester has thrown a wrench into the British election, as the Conservatives’ lead has been cut sharply. Although Theresa May is expected to form a majority government, the pound plunged in response to the latest opinion polls. Over in the US, the Fed rate statement was more cautious than expected, which weighed on the US dollar. In the US, revised GDP report posted a respectable gain of 1.2%, beating the estimate.

Updates:

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

  1. BRC Shop Price Index: Tuesday, 23:01. This consumer inflation report continues to post declines, but the rate of decline has been lower over the past three readings. In April, the index came in at -0.5%. Will we see a reading in positive territory in May?
  2. GfK Consumer Confidence: Tuesday, 23:01. The British consumer remains pessimistic about the economy according to this indicator, which continues to record readings below zero. The estimate for May stands at -8 points.
  3. Net Lending to Individuals: Wednesday, 8:30. Borrowing levels are closely watched, as they are linked to consumer spending levels. The indicator dipped to GBP 4.7 billion in March, but this beat the estimate of GBP 4.5 billion. The downward trend is expected to continue, with an estimate of GBP 4.5 billion.
  4. Nationwide HPI: Thursday, 6:00. This housing price index is a useful gauge of the level of activity in the housing sector. The indicator has recorded two consecutive declines, missing expectations on both occasions. The markets are expecting better news in May, with an estimate of 0.2%.
  5. Manufacturing PMI: Thursday, 8:30. The index continues to point to expansion in the manufacturing sector, and the March reading of 57.3 beat expectations. The forecast for April stands at 56.5 points.
  6. 10-y Bond Auction: Thursday, Tentative. The yield on 10-year bonds dropped to 1.13%, its lowest since October 2016. Will we see a higher yield in the May release?
  7. Construction PMI: Friday, 8:30. The PMI has been fairly steady, pointing to modest expansion in the construction sector. The March reading of 53.1 beat the estimate of 52.1 points. The markets are expecting a slight dip in April, with an estimate of 52.7 points.

*All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.3009 and quickly hit a high of 1.3043. The pair dropped sharply late in the week, hitting a low of 1.2773, testing support at 1.2775 (discussed last week). The pair closed the week at 1.2781.

Technical lines from top to bottom

With the pound posting sharp losses last week, we begin at lower levels:

1.3247 has held in resistance since September 2016.

1.3112 marked a low point in June 2016 as the pound crashed after the Brexit vote.

1.3020 is protecting the symbolic 1.30 level.

1.2902 is next.

1.2775 is providing weak support. It could see action early in the week.

1.2548 is next.

1.2332 has provided support since March. It is the final support level for now.

I am bearish on GBP/USD.

Britain remains shaken from the Manchester attack, and the political uncertainty over the election as well as Brexit jitters could sour investors on the pound.

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