GBP/USD Forecast February 17-21 – Pound Rebounds, Punches Past 1.30 Level

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GBP/USD continues to show strong swings. The pair rebounded last week, gaining 1.2% after sliding 2.4% a week earlier. The upcoming week features consumer inflation and retail sales. Here is an outlook for the highlights and an updated technical analysis for GBP/USD.

British GDP releases were mixed. Final GDP for Q3 came in at 0.4%. Preliminary GDP for Q4 was much weaker, with a reading of 0.0%, which matched the estimate. The monthly GDP report improved to 0.3% in December, up from -0.3% a month earlier. Manufacturing production bounced back in December, recording a gain of 0.3%. This followed a sharp loss of 1.7% in November.

In the U.S., Federal Reserve Chair Jerome Powell outlined to the Senate Banking Committee the Fed’s strategy in case of a financial crisis. Powell said that the Fed had two tools to fight a recession – quantitative easing, which involves large purchases of assets, and forward guidance, which means communicating with the markets about the likely future course of interest rate policy. Powell said that he believes that the Fed would use both these tools “aggressively should the need arise to do so”.
Inflation remained at low levels in January. CPI dipped to 0.1%, its lowest level in five months. Core CPI edged up to 0.2%, up from 0.1%. Retail Sales stayed unchanged at 0.3%, matching the forecast. The core reading slipped from 0.7% to 0.3%, also matching the estimate.

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

  1. Employment Reports: Tuesday, 9:30. Wage growth has been steadily decreasing, from a high of 4.0% back in July. The November release was unchanged at 3.2%, but is expected to tick lower to 3.1% in December. Unemployment rolls fell sharply to 14.9 thousand in January, much lower than the estimate of 33.4 thousand. This marked the slowest gain in 12 months. The unemployment rate is projected to remain at 3.8% for a fourth successive month.
  2. Inflation: Wednesday, 9:30. CPI slipped to 1.3% in December, shy of the estimate of 1.5%. This was the lowest monthly level since November 2016. Analysts expect CPI to climb to 1.7% in January. Core CPI, which excludes the most volatile items which make up CPI, slipped to 1.4% in December, shy of the estimate of 1.7%. The forecast for January stands at 1.5%.
  3. Retail Sales: Thursday, 11:00. Retail sales continues to struggle, with no gains since August. In December, the indicator declined by 0.6%, compared to the forecast of +0.5%. A strong rebound is expected in January, with an estimate of 0.7%.
  4. CBI Industrial Order Expectations: Thursday, 11:00. The Confederation of British Industrial index continues to show expectations for lower volumes, but the numbers have been improving. The January release came in at -22, up from -28 a month earlier. The positive trend is expected to continue in February, with an estimate of -19 points.
  5. Manufacturing PMI: Friday, 9:30. Manufacturing PMI improved to 50.0 in January, above the estimate of 49.8 points. The forecast for the initial manufacturing PMI in February stands at 49.7, just below the 50-level, which separates contraction from expansion.
  6. Services PMI: Friday, 9:30. The final reading for services PMI in January came in at 53.9, pointing to expansion. This beat the estimate of 52.9 points. The estimate for the initial services PMI in February is 53.4 points.

GBP/USD Technical analysis

Technical lines from top to bottom:

1.3375 has held since mid-December, when the pound went on an extended slide.

This is followed by resistance at the round number of 1.3300. 1.3170 is next.

1.3070 is under pressure in resistance.

1.3000 (mentioned last week) has switched to a support role following gains by GBP/USD last week.

1.2910 has held in support since early December. This is followed by support at 1.2820.

1.2728 is providing support.

1.2616 is the final support level for now.

I remain neutral on GBP/USD

The pound gained ground last week and crossed above the 1.30 line, but with the British economy not in the best of shape, the currency may have trouble holding its own against the greenback.

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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.

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