GBP/USD enjoyed some upbeat PMI figures to recover but things became more complicated later on. The White Paper on Brexit, manufacturing production, and other figures await the pound. Here are the key events and an updated technical analysis for GBP/USD.
Contradicting reports about the government’s stance on Brexit move the pound back and forth as well as the PMI data. In the US, data was positive and fears about trade were subsided for a while.
Update: Theresa May lead the British government to sign off on a softer version of Brexit, practically supporting a continued membership of the Customs Union. However, Brexit minister David Davis resigned in anger, taking with him a few deputies and triggering fears that the government is about to collapse. The conseuqent resgination of Foreign Secretary Boris Johnson sent the pound tumbling down, but it is unclear if May’s government is indeed in danger. A buying opportunity on the pound? The political crisis seems to be under control and the rebels may be planning their mutiny for the fall. In the meantime, the focus in the UK is on England’s performance in the World Cup.Updates:
GBP/USD daily graph with resistance and support lines on it. Click to enlarge:
- White Paper on Brexit: Monday. The British government is having hard deliberations over Brexit and is set to produce its White Paper on future relations on Monday. This comes after a meeting at Chequers on Friday. The EU is quite frustrated with the UK’s leg-dragging on Brexit and the clock is ticking. The response by Chief EU Negotiator Michel Barnier is no less important than the contents of the document. An immediate breakthrough is highly unlikely.
- BRC Retail Sales Monitor: Monday, 23:01. The British Retail Consortium’s measure of sales at its members’ stores increased by 2.6% y/y in May. The figure for June will likely be upbeat as well.
- Manufacturing Production: Tuesday, 8:30. Output in the manufacturing sector dropped sharply by 1.4% in April. The month of May was probably better and an increase is likely. The broader industrial production measures fell by a more moderate 0.8%.
- Goods Trade Balance: Tuesday, 8:30. Britain’s trade balance deficit widened to no less than 14 billion in April, a worrying level. We could see it narrow down in May.
- Construction Output: Tuesday, 8:30. The construction sector enjoyed an increase in activity in the spring with an increase of 0.5% in output. We could see another positive, yet more moderate increase in May.
- RICS House Price Balance: Wednesday, 23:01. The Royal Institution of Chartered Surveyors reported a better balance in prices in May: only -3%. This is still in negative territory, but better than in previous months.
- BOE Credit Conditions Survey: Thursday, 8:30. This survey by the Bank of England discussed expanding credit in previous quarters. We will now get the report for Q2 2018.
* All times are GMT
GBP/USD Technical analysis
Pound/dollar kicked off the week in an upbeat mood, challenging the 1.3200 level mentioned last week.
Technical lines from top to bottom:
1.3615 capped the pair in late 2017. 1.3470 was a swing high in early June.
The round number of 1.34 could provide further support. Further down, 1.3315 was a swing high in late June.
1.3250 was a swing low in early June. Even lower, 1.3205 was the low point in late May. 1.3100 was a swing low in mid-June and 1.3050 is the latest 2018 low. The round number of 1.3000 awaits below
I remain bearish on GBP/USD
It is hard to believe that the EU will accept anything that the UK proposes. Even if they welcome the proposals, time is running out for Brexit and the UK economy is lagging behind the American one.
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