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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 defied gravity and worrying data to stay afloat, taking advantage of the weakness of the US dollar and eventually ended the weak and the highest levels since the Brexit vote. The upcoming week features the inflation report and retail sales numbers among other events. Will cable remain stable? Here are the key events and an updated technical analysis for GBP/USD.

The UK trade balance deficit expanded, various measures of consumption are slowing and the BOE reports a worsening debt situation. Nevertheless, the weakness of the dollar, mostly exposed through the report about China slowing or halting the buying of US Treasuries, helped stabilize GBP/USD. At the end of the week, a beat on US inflation was not enough for the dollar, that totally collapsed. Can this continue or will Brexit send the pound lower?

Updates:

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

  1. Silvana Tenreyro speaks, Monday, 18:15. The External Monetary Policy Committee member will deliver a speech about the fall in productivity growth at the Queen Mary University and may provide us some insight about the Bank’s thinking ahead of the inflation report. Tenreyro is a relatively new member of the MPC.
  2. Inflation report:  Tuesday, 9:30. Britain stands out among developed countries by suffering from elevated inflation. Year over year CPI surpassed the 3% threshold in the reading for November, above the 1-3% range. Rising inflation has already triggered a rate hike in November, but the BOE seems reluctant to make additional tightening given the uncertainty resulting from Brexit and the slowing economy. Another rise in this important report that concludes 2017 may force the BOE to rethink. CPI is forecast to tick down to 3% y/y. Core CPI stood at 2.7% and is now predicted to slip to 2.6%. The Retail Price Index was higher at 3.9% with no change expected now. PPI Input rose by 1.8% and a smaller rise of 0.8% is on the cards.
  3. CB Leading Index: Tuesday, 14:30. The Conference Board’s leading index dropped by 0.2% in October. This composite figure is based on seven economic figures, most of them already released. Nevertheless, it provides a wide view of the economy.
  4. RICS House Price Balance: Thursday, 00:01. The diffusion index published by the Royal Institution of Chartered Surveyors showed a perfect balance between price rises and increases in November. Given the recent reports about falling prices, the indicator could turn negative now: -1% is projected.
  5. Retail Sales: Friday, 9:30. The volume of retail sales surprised to the upside in November, rising by 1.1%. It is hard to see the positive trend extend into December. The reports by BRC, Visa, and various retailers point to weak Christmas shopping season. A fall of 0.8% is on the cards.

BP/USD Technical Analysis

Pound/dollar was pressured to the downside at some points during the week but the 1.3460 support level mentioned last week proved itself quite nicely.

Technical lines from top to bottom:

We start from higher ground this time. The very round level of 1.40 looms above. 1.3830 served as support after the break of the financial crisis. 1.3743 is the January 2018 high and should be watched.

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.

I remain bearish on GBP/USD

While the pound is showing a lot of strength, it is hard to see this continuing. The pound could eventually succumb to the pressure: internal and extenral political issures, inflation that is biting, a reluctant central bank and an economic slowdown.

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