GBP/USD Forecast July 1-5 – PMIs could shake up pound

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GBP/USD had its quietest week since late May, posting slight losses. This week’s key events are the PMI reports. Here is an outlook for the highlights of the upcoming week and an updated technical analysis for GBP/USD.

British consumers remain gloomy about the economy, as GfK Consumer Confidence dropped to -13, below the estimate of -11. Britain’s balance of payments deteriorated in Q1, as the current account deficit widened to GBP 3.0 billion, up sharply from 27.3 billion in Q4 of 2018. This marked the largest deficit in three years. Final GDP posted a respectable gain of 0.5% in Q1, unchanged from the initial estimate.

In the U.S., this week’s numbers were a mixed bag. CB consumer confidence dropped to 121.5 in June, down sharply from 131.3 in May. This marked its lowest level since September 2017. First-quarter GDP was unrevised in the second estimate, with a strong gain of 3.1%. Durable goods orders disappointed with a decline of 1.3%, its third decline in four months. There was no movement from the Core PCE Price Index, the Federal Reserve’s favorite inflation gauge. The indicator remained stuck at 0.2%.      

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

  1. Manufacturing PMI: Monday, 8:30. In May, the index dropped into contraction territory for the first time in almost three years, with a reading of 49.4. This missed the estimate of 52.5. Little change is expected in June, with an estimate of 49.5.
  2. Construction PMI: Tuesday, 8:30. The PMI pointed to contraction in May, with a reading of 48.6. Another weak reading is expected in June, with an estimate of 49.4.
  3. BRC Shop Price Index: Tuesday, 23:01. This inflation gauge improved to 0.8% in May, up from 0.4%, a month earlier. Will we see another strong reading in June?
  4. Services PMI: Wednesday, 8:30. The index improved to 51.0 in May, above the forecast of 50.6. This points to stagnation in the services sector. The estimate for June remains at 50.6.
  5. Halifax HPI: Friday, 8:30. The Halifax Bank of Scotland housing inflation gauge slowed to 0.5% in May, down from 1.1% a month earlier. The markets are braced for a decline in June, with an estimate of -0.4%.

* All times are GMT

GBP/USD Technical analysis

Technical lines from top to bottom:

1.3170 was a swing high in early November. 1.3070 is next.

Next is the round number of 1.30. 1.2910 (mentioned last week) has held in resistance since mid-May.

1.2850 capped recovery attempts in late November.

1.2728 remained relevant last week.

1.2660 remains a weak support level. 1.2590 is next. It was a swing low in September 2017.

Lower, 1.25 is a round number and also worked as support in early 2017. Further down is 1.2420.

1.2330 has provided support since March 2017.

I am bearish on GBP/USD

The British economy has performed better than most expected, given the dark cloud of Brexit. However, with the deadline for the U.K. departure only a few months away, investors will likely get jittery if there is no agreement in place. This lack of uncertainty could weigh on the pound.

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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.