GBP/USD had its strongest week since October, capitalizing on the broadly weaker U.S dollar. The upcoming week could see strong volatility, as parliament votes on the Brexit withdrawal deal. The key events in the upcoming week are testimony from BoE Governor Carney, CPI and Retail Sales. Here is an outlook for the highlights of this week and an updated technical analysis for GBP/USD.
The U.S dollar was broadly lower last week, as a surprisingly dovish Fed took the wind out of the dollar’s sails. This stance was reiterated by the Fed minutes from the December meeting, where policymakers said they would be patient and prudent before any further hikes. In the U.K., monthly GDP came in at 0.2%, above the estimate and a four-month high. The manufacturing sector is showing signs of weakness, as Manufacturing Production posted a second successive decline.
GBP/USD daily graph with resistance and support lines on it. Click to enlarge:
- Parliament Brexit Vote: Tuesday, Tentative. All eyes will be on this crucial vote. UK PM has secured an reached an agreement on the withdrawal of the country from the EU, but Parliament is expected to vote against the deal. That would mean a great deal of uncertainty as to what happens next. The expectation is that the UK will then return to Brussels, achieve a few minor concessions and return for a second vote. The tweaks and the rout in financial markets would then convince members to vote for the deal. Other scenarios include the passage of the deal in the first vote, a pound-positive development that is not priced in. A third scenario is a significant defeat for the government that would clarify there is no chance for a second vote. In this case, there are growing chances of a no-deal Brexit, which would be devastating for the pound, general elections in which Labour’s Jeremy Corbyn could become PM, a second referendum, or a reversal of Brexit. Traders should be prepared for some volatility after the historic vote.
- BoE Governor Carney Testifies: Wednesday, 9:15. Carney will testify before a parliamentary committee about the Financial Stability Report. Lawmakers will be especially interested in asking Carney about possible ramifications from Brexit on the country’s financial system.
- UK Inflation: Wednesday, 9:30. Consumer inflation has been losing ground in recent months, and the downturn is expected to continue in December, with a forecast of just 2.1%. This key event can have a strong impact on the movement of GBP/USD.
- High Street Lending: Wednesday, 9:30. This release represents around 60% of all UK mortgages and is released before the official numbers are. Mortgage approvals are expected to 39.0K, down from 39.4 thousand in the previous release.
- RICS House Price Balance: Thursday, 00:01. The Royal Institution of Chartered Surveyors showed a deteriorating situation in the housing market in the past two months, with the balance between surveyors reporting price decreases overtaking those that report an increase. After a level of -11% in November, a level of -13% is expected for December.
- BoE Credit Conditions Survey: The Bank of England’s quarterly report details lending conditions. Higher levels of debt may pose a risk but also imply confidence in the growth of the economy. The survey provides projections for the next three months.
- Retail Sales: Friday, 9:30. This key event is the primary gauge of consumer spending. After an excellent gain of 1.4% in November, the markets are bracing for a decline of 0.8%. The pound usually reacts quite swiftly to the data, but the impact is not a lasting one.
* All times are GMT
GBP/USD Technical analysis
Technical lines from top to bottom:
1.3170 has been a resistance line since early November.
1.3070 was a high point in mid-November. The symbolic number of 1.3000 is important after providing support to the pair in late September. 1.2910 was a high point in late November. 1.2850 capped recovery attempts in late November.
Further down, 1.2790 served as support late August and also beforehand. 1.2765 was a swing low in mid-November. It is followed by the trough of 1.2725 seen earlier that month.
1.2660 is next, followed by 1.2590.
Lower, 1.25 is a round number and also worked as support in early 2017.
1.2420 has held since April 2017.
1.2330 is the final support level for now.
I remain bearish on GBP/USD
With Prime Minister May expected to suffer a significant defeat on the Brexit deal, it’s difficult to see how the pound will escape the week without losses. It could be a tumultuous week for GBP/USD.
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