Browsing: GBP USD Forecast

Another busy week expects cable traders, with retail sales, meeting minutes and speeches. Here’s an outlook for the British events, and an updated technical analysis for GBP/USD.

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

gbp usd forecast October 18-22

Inflation is still above the government target, at 3.1%, and we also saw another rise in the number of unemployed people in Britain this week. The pound still lagged behind. Will this change this week?

  1. Rightmove HPI: Sunday, 23:00. This isn’t considered the most accurate house price index in Britain. Nevertheless, it’s the earliest one that is released, and it’s also released early in the week. The past three months saw drops in house prices. This trend was reflected also in other HPIs. After last month’s 1.1% drop, a smaller drop is expected now.
  2. CBI Industrial Order Expectations: Tuesday, 10:00. 550 manufacturers are surveyed for this gauge of the industry. After a few months of improvement, CBI showed a drop in this indicator, to -17 points. The negative number means that lower order is expected. Another drop to -19 points is due now.
  3. Mervyn King talks: Tuesday, 18:50. The governor of the BOE will speak in Dudley and will have a chance to pound the pound. King is rather dovish, disregarding the high inflation and supporting low rates. In his speeches, he usually expresses concern and hurts the pound.
  4. MPC Meeting Minutes: Wednesday, 8:30. After Adam Posen supported more quantitative easing steps, it will be interesting to see if the committee was split three ways, with Sentance voting for a rate hike (bullish), most members voting for not taking any new steps and with Posen supporting QE (bearish). In the last rate decision, no statement was released.
  5. Public Sector Net Borrowing: Wednesday, 8:30. The new government, led by Cameron, put spending cuts on the top of its agenda. Net lending indeed fell to only 2 billion pounds two months ago, but jumped back to the regular levels – 15.3 billion last month. A small squeeze to 14.2 billion is expected, and will probably help the pound.
  6. Retail Sales: Thursday, 8:30. This major consumer indicator always rocks the British pound. After a few months of growth, the result last month was very disappointing – a drop of 0.5%. This time, sales are expected to grow by 0.4%.
  7. Mortgage Approvals: Thursday, 8:30. This important and official housing sector figure is only the initial release, but it tends to have a strong impact on the pound. After reaching 47K in the past two months, the number of approvals is expected to drop to 44K this time.
  8. Adam Posen talks: Friday, 9:15. The “dove” in the monetary policy committee will appear in a conference in Vienna, and might reiterate his call for more easing steps to aid the British economy. The pound could drop on his words.

* All times are GMT

GBP/USD Technical Analysis

At the beginning of the week, GBP/USD dropped below 1.5820, but quickly recovered. Jumps above 1.60 reached th1 1.6080 line (mentioned in last week’s outlook), but the pair eventually closed under 1.60, at 1.5987.

The 1.60 line continues to be a major and important resistance line despite the two breaks in the past week. Above, a convincing break above 1.60 will find resistance once again at the 1.6080 a line that worked just now.

Higher, 1.6270 worked as support in November and also had a role in the opposite direction later on. The last line for now on the upside is 1.6450 – a swing high in January.

Looking down, 1.5923 which served as resistance in September, is a minor support line. Below, the role of 1.5820 is still important. It had the same role at the beginning of August.

Lower, 1.57 is the next line of support. It was a tough resistance line in August. Below, 1.5530 capped the pair in April and worked as resistance not so long ago.

Even lower, 1.5230 was a stubborn line of resistance back in July. It’s followed by 1.5120, that first served as resistance in June and then worked as support in July.

I remain bearish on GBP/USD.

The important fundamentals released in the past week didn’t shine on the pound. With Britain’s participation in the “forex war” (talks about more QE), and the failure to settle above 1.60, a comeback of the dollar could find GBP/USD quite vulnerable.

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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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