GBP/USD Forecast Feb. 4-8 – Have the Brexit blues caught up with cable?

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GBP/USD retracted last week, posting losses of close to 1 percent. The upcoming week’s key events are the BoE rate announcement and inflation report. Here is an outlook for the highlights of this week and an updated technical analysis for GBP/USD.

After a string of weekly gains, cable headed lower last week. Parliament revisited the withdrawal agreement, but the confusion over a post-Brexit remains. Lawmakers indicated that they oppose a no-deal and sent Theresa May back to Brussels to renegotiate the Irish border backstop. However, the EU insists that they will not reopen the withdrawal deal, so what happens next remains unclear.

British manufacturing PMI slipped to 52.8, its weakest level in three months. The turmoil surrounding Brexit and global trade war have weighed on the manufacturing sector as well as exports. Consumer credit also slowed, as the gain of  6.6 percent in December year-on-year marked the weakest pace since December 2014. Back in 21017, consumer credit was growing at a 10 percent clip.

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

  1. Construction PMI: Monday, 8:30. The first of Markit’s purchasing managers’ indices is for the construction sector. The indicator dipped to 52.8 in December, which was within expectations. The estimate for January stands at 52.6 points.
  2. BRC Retail Sales Monitor: Monday, 23:01. The BRC release is a useful gauge of consumer inflation. The decline in  December was unusually sharp, with a score of 0.7%. Another decline is expected in January, with an estimate of -0.2%.
  3. Services PMI: Wednesday, 9:30. The indicator has been hovering just above the 50-level, indicating stagnation. The indicator came in at 51.2 in January, and little change is expected in the upcoming release, with a forecast of 51.1.
  4. Halifax HPI: Thursday, 8:30. The housing inflation index jumped to 2.2% in December, crushing the estimate of 0.5%. The markets are bracing for a soft reading of -0.5% in January.
  5. BoE Decision: Thursday, 12:00, press conference at 12:30 The BoE will release its rate decision and the meeting minutes of the event, as well as its Quarterly Inflation Report (QIR). This will be followed with an accompanying press conference by Governor Mark Carney and some of his colleagues. The BOE is set to maintain the benchmark rate at 0.75% (raised to this level in August) and the QE program at 435 billion pounds. The Monetary Policy Committee (MPC) voted unanimously to maintain this policy in the previous meeting and the same voting pattern will probably be repeated. The QIR includes new inflation and growth projections, known as “fan charts.” Given the uncertainty surrounding Brexit negotiations, it’s a tricky task to predict what message the bank will send to the markets.

* All times are GMT

GBP/USD Technical analysis

GBP/USD was under pressure throughout the week. The pair tested support at 1.3070 (mentioned last week)

Technical lines from top to bottom:

1.3470 was a swing high in early June.

1.3375 was a high point in July. It is followed by 1.3300 was the high point in September and also a psychologically important round number. This is followed by 1.3258.

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 busy throughout the week.

1.2850 capped recovery attempts in late November.

1.2728 is the final support level for now.

I am bearish on GBP/USD

The pound has managed to post gains in recent weeks, but Brexit jitters may have finally caught up with the currency. All sides are saying they don’t want a no-deal scenario, but the gaps between the EU and Britain over the Irish border remain wide, with no solution in sight.

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Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.