GBP/USD gained over 1.0% last week, rebounding after three losing weeks. This week’s key events are the inflation hearings, Manufacturing PMI and Net Lending to Individuals. Here is an outlook for the highlights of this week and an updated technical analysis for GBP/USD.
Strong employment numbers boosted the pound, which touched a 2-week high last week. Wage growth posted a solid gain of 3.4% for a second straight month. The unemployment rate remained at 4.0%, its lowest level since 1975.
The Brexit turmoil continues, with little progress to report on the thorny issue of the Irish border. All sides are declaring that they want to avoid a no-deal scenario, but that sentiment has not been followed up with any flexibility. Brexit is just 5 weeks away, and the pound could so significant volatility unless the sides agree to extend Article 50 and delay Britain’s departure from the EU.
GBP/USD daily graph with resistance and support lines on it. Click to enlarge:
- BoE Governor Carney Speaks: Monday, 10:00. The week could start with some volatility for the pound, as Carney’s comments are always closely watched. Investors will be looking for clues regarding future investor policy.
- High Street Lending: Tuesday, 9:30. The number of approved mortgages by major banks has dipped in the past two months, but is expected to reverse directions in January and improve to 39.2 thousand.
- Inflation Report Expectations: Tuesday, 10:00. Bank of England Governor Mark Carney and several of his colleagues will testify before a committee in parliament to discuss the latest developments. With inflation falling before 2.0%, it will be interesting to see if Carney hints at raising interest rates to boost inflation. Brexit will be also a crucial topic in the hearings, just weeks ahead of Britain’s departure from the EU.
- BRC Shop Price Index: Wednesday, 00:01. This consumer inflation number edged up to 0.4%, its highest level since 2013. Will the positive trend continue?
- GfK Consumer Confidence: Thursday, 00:01. Consumer confidence has weakened, with two successive scores of -14 points. Consumers are nervous over the uncertainty over Brexit as well as the global trade war.
- Manufacturing PMI: Friday, 9:30. The manufacturing sector continues to expand, but slowed down to 52.8 in January. The PMI is expected to soften in February, with an estimate of 52.0 points.
- Net Lending to Individuals: Friday, 9:30. Higher credit levels are indicative of stronger economic growth. The December reading improved to $4.8 billion, above expectations. The forecast for January stands at $4.7 billion.
- M4 Money Supply: Friday, 9:30. The indicator improved to 0.4% in December, above the forecast of 0.2%. The estimate for January is 0.3%.
- Mortgage Approvals: Friday, 9:30. Mortgage approvals have shown steady growth, with two successive gains of 64 thousand. A gain of 63 thousand is forecast for January.
GBP/USD Technical analysis
Technical lines from top to bottom:
1.3375 was a high point in July. It is followed by 1.3300, which was the high point in September and also a psychologically important round number.
1.3217 was the high point of the pound rally in late January.
1.3170 was a swing high in early November. 1.3070 was a high point in mid-November. The symbolic number of 1.3000 provided support to the pair in late September.
1.2910 was a high point in late November and was tested in support last week.
1.2850 capped recovery attempts in late November.
1.2728 was active in the first half of January.
1.2616 is the final support level for now.
I am neutral on GBP/USD
The British economy has shown strength in certain areas, such as the labor market. Still, Brexit concerns and the global trade war are weighing on the economy and could weigh on the pound. A no-deal scenario is looming, but if the sides reach an agreement, the pound could climb sharply.
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