GBP/USD enjoyed an outstanding week, posting gains of 2.5%, as the pair climbed to its highest level since mid-October. This week’s key events are a speech from BoC Governor Carney and Net Lending to Individuals. Here is an outlook for the highlights of this week and an updated technical analysis for GBP/USD.
Crisis? What Crisis?
Despite the turmoil and uncertainty surrounding Brexit and the May government, the pound continues to gain ground. GBP/USD has now posted weekly gains for six successive weeks. The naysayers continue to argue that the pound will fall, but the currency has defied these gloomy predictions.
The pound ended the week with a surge, taking advantage of a broadly-lower U.S. dollar. The catalyst for the greenback retreat was President Trump’s agreement to reopen government services for a 3-week period. This move will allow Federal government workers to be paid and could pave the way for a full restoration of federal government services.
British wage growth climbed to 3.3% year-on-year, its strongest level in two years. The participation rate rose while the unemployment rate fell, as the labor market continues to impress.
GBP/USD daily graph with resistance and support lines on it. Click to enlarge:
- BoE Governor Carney Speaks: Monday, 14:30. Carney will speak at BoE forum in London. A speech that is more hawkish than expected is bullish for the pound.
- BRC Shop Price Index: Wednesday, 00:01. The BRC release is a useful gauge of consumer inflation. After a string of declines, the indicator has posted four gains in the past five months. Will the positive trend continue?
- Net Lending to Individuals: Wednesday, 9:30. Credit levels fell to GBP 4.4 billion in December, a sign of lower consumer confidence. The markets are expecting the indicator to edge lower to GBP 43. billion in January.
- GfK Consumer Confidence: Thursday, 00:01. The British consumer is becoming more pessimistic, as the indicator continues to lose ground. Consumer confidence fell to -14 in December, and an identical reading is expected in January.
- Nationwide HPI: Thursday, 7:00. This housing price index sagged in January, with a sharp decline of 0.7%. A modest gain of 0.2% is projected.
- Manufacturing PMI: Friday, 9:30. The PMI is pointing to modest expansion in recent months, and this is expected to continue in January, with a forecast of 53.5 points.
* All times are GMT
GBP/USD Technical analysis
The pound had a busy week, marked by strong volatility which included testing the round 1.30 level for the first time since mid-November.
Technical lines from top to bottom:
With GBP/USD posting sharp gains last week, we start at higher levels.
1.3615 capped the pair in late 2017.
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 (mentioned last week) was a high point in late November and was busy throughout the week.
1.2850 capped recovery attempts in late November.
I remain neutral on GBP/USD
The pound has managed to post gains in recent weeks, but Brexit jitters could finally catch up with the currency. If parliament votes down a second proposal over the Brexit withdrawal, a no-deal scenario would emerge as a serious possibility, which could wreak havoc on the economy and the pound.
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- Forex weekly forecast – Outlook for the major events of the week.
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