GBP/USD enjoyed upbeat data and held its ground against some dollar strength as a rate hike looks imminent. A last look at Q2 GDP stands out in the upcoming week, as Brexit remains an important theme Here are the key events and an updated technical analysis for GBP/USD.
Retail sales beat expectations by a wide margin, giving a big boost to the pound. And while Carney seems somewhat reluctant to raise rates, a hike in November seems inevitable. Boris Johnson’s musings about Brexit and resigning drew some attention as Brexit negotiation reached the top levels of government. Theresa May’s highly anticipated speech was positive in its tone but did not provide many details. Once again, she said the UK will remain out of the single market and the customs union, and the pound dropped. The Fed maintained its forecasts for raising rates in December, pushing the dollar higher, but the pound was quite resilient in the face of this dollar strength.
GBP/USD daily chart with resistance and support lines on it. Click to enlarge:
- FPC Statement: Monday, 9:30. The Financial Policy Committee releases a statement about the current conditions in the financial system. Members of the BOE have recently expressed worries about a growing credit boom. A worried tone from the FPC could increase the chances of a rate hike.
- High Street Lending: Tuesday, 8:30 (delayed from last week). UK Finance releases the number of mortgages taken out by a group of banks representing nearly two-thirds of the house lending market. A level of 41.6K was seen in July. We now get figures for August. A small rise to 41.7K is expected.
- CBI Realized Sales: Wednesday, 10:00. The Confederation of British Industry showed a significant deterioration in its report for August. The score of -10 indicates a lower volume of sales and this is the worst score since July last year. A bounce to +8 is predicted now.
- Mark Carney talks: Thursday, 8:15 and Friday at 14:45. The Governor of the Bank of England will deliver opening and then closing remarks at a conference commemorating 20 years to the Bank’s independence. It is unclear if he will touch on monetary policy. If so, any deviation from the BOE’s intention to raise rates in November could hurt the pound. A confirmation of the hike and also a hint that this is the beginning of a cycle could boost the pound.
- GfK Consumer Confidence: Thursday, 23:01. Consumers are pessimistic since early 2016 according to GfK. In August, the score improved from -12 to -10, beating expectations but still hovering around the low levels. A small slide to -11 is predicted now.
- Final GDP: Friday, 8:30. The third and final read of Q2 GDP is expected to confirm the previous reads of 0.3% q/q. All in all, the UK economy had a great 2016 but has slowed down in 2017. Brexit begins biting.
- Current Account: Friday, 8:30. Similar to the narrower trade balance, Britain has a deficit in its current account. A deficit of 16.9 billion was recorded in Q1. We now get the figures for Q2 which are expected to show a slightly narrower deficit of 15.8 billion.
- Net Lending to Individuals: Friday, 8:30. Consumers continue lending, albeit at a slower pace in July: 4.8 billion pounds in net lending, below the 5 billion+ level seen beforehand. It is now projected to return to 5 billion.
- Mortgage Approvals: Friday, 8:30. The number of mortgage approvals increased to 69K in July, up from 65K. A drop to 67K is on the cards.
GBP/USD Technical Analysis
Pound/dollar held onto high ground and challenged the 1.3620 level (mentioned last week).
Technical lines from top to bottom:
1.3830 was a trough that the pair experienced back in February 2016, before the Brexit vote. The very first low that the pair experienced after the vote was 1.3620.
1.35 was the post-Brexit high and remains the top level. It is followed by 1.3370 which capped the pair several times in 2016.
The 2017 high (so far) of 1.3270 is the next barrier. 1.3225 was the high point of September.
It is followed by 1.3180, which capped the pair in July. 1.3120 served as resistance twice in the summer of 2017 and remains important.
Below, 1.3050 is a double top as seen during the spring of 2017. 1.2975 awaits on the lower side of 1.30.
Further below, 1.2890 separated ranges on the way down. It is followed by 1.2820 and 1.2775.
I am bearish on GBP/USD
Markets got too excited about the BOE’s hawkishness. We’ve seen this movie before. Carney prefers talking up the pound than raising rates. Some of the hot air could come out of this bubble.
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