GBP/USD continues to show volatility. The pair reversed directions last week, falling 1.1%. It’s a very busy week, with the U.K. releasing consumer inflation and retail sales. As well, the BoE is expected to maintain the benchmark rate at 0.75%. Here is an outlook for the highlights of the upcoming week and an updated technical analysis for GBP/USD.
British data was dismal at the start of the week. GDP declined by 0.4% in April, marking a second straight contraction. This was followed by manufacturing production, which plunged 3.9%, its sharpest drop since 2002. Employment data was mixed. Wage growth dropped from 3.2% to 3.1%, but managed to beat the forecast of 2.9%. Unemployment claims came in at 23.2 thousand, much higher than the estimate of 12.3 thousand.
In the U.S., the spotlight was on consumer inflation and spending data. May inflation numbers were soft, as CPI and core CPI came in at 0.1%. As expected, U.S. consumer spending data improved sharply in May. Core retail sales climbed 0.5%, matching the estimate. Retail sales also improved to 0.5%, but fell shy of the forecast of 0.7%. These consumer inflation and consumer spending numbers could play a crucial role in the Federal Reserve’s forward guidance for rates. The markets are prepared for rate cuts in the second half of the year. The CME Group has set the odds of a July cut at 62% and another cut in September at 55%. Lower interest rates make the U.S. dollar less attractive to investors, which could help boost the pound.
GBP/USD daily graph with resistance and support lines on it. Click to enlarge:
- Inflation Data: Wednesday, 8:30. CPI, the primary gauge of consumer spending, climbed to 2.1% in April. This is the first time in four months that inflation pushed above the BoE target of 2.0%. The forecast for the May release stands at 2.1%. Core CPI is projected to dip to 1.6%, after posting gains of 1.8% for three straight months.
- CBI Industrial Order Expectations: Wednesday, 10:00. Manufacturing orders decreased sharply in May, with a reading of -10. This was the sharpest decline since October 2016. No relief is expected in June, with an estimate of -11.
- Retail Sales: Thursday, 8:30. Retail sales has been showing sharp swings, making accurate predictions a tricky task. In April, the indicator slowed to 0.0% and the downward trend is expected to continue, with an estimate of -0.5% for May.
- BoE Decision: Thursday, 11:00. The BOE is set to maintain the benchmark rate at 0.75% (raised to this level back in August) and the QE program at 435 billion pounds. The Monetary Policy Committee (MPC) voted unanimously to maintain this policy in the previous meeting and the same voting pattern will probably be repeated. If the Monetary Policy summary is on the dovish side, the pound could lose ground.
- Public Sector Net Borrowing: Friday, 8:30. The U.K. deficit ballooned to GBP 5.0 billion in April, but this was below the forecast of GBP 5.2 billion. The deficit is expected to fall to GBP 3.3 billion in May.
* All times are GMT
GBP/USD Technical analysis
Technical lines from top to bottom:
1.2850 capped recovery attempts in late November.
1.2728 was active in the first half of January.
1.2660 remained relevant during the week. 1.2590 was a swing low in September 2017. It was breached late in the week.
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.
1.2214 is the final support line for now.
I am bearish on GBP/USD
Weak GDP and manufacturing numbers this week underlined weakness in the British economy. Add to the mix the political instability in London and the Brexit deadlock with the EU, and there could be more turbulence for the pound.
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