GBP/USD continues to show volatility. The pair rebounded last week, climbing 1.2%, as the U.S. dollar was broadly lower. This week’s key events are the BoE inflation hearings and Final GDP. Here is an outlook for the highlights of the upcoming week and an updated technical analysis for GBP/USD.
It was a busy week for U.K. events. CPI dipped to 2.0%, down from 2.1% a month earlier. Retail sales, the primary gauge of consumer spending, disappointed with a decline of 0.5% in May, the first decline in 2019. The BoE held the course, maintaining rates at 0.75%. The bank lowered its growth forecast for Q2 to zero, as policymakers noted concern over global trade tensions and the possibility of a no-deal Brexit.
There was a dearth of key U.S. indicators, so investors focused on the Federal Reserve, which held its monthly policy meeting. As expected, the Fed maintained rate levels, but the message from policymakers is that a rate cut is on the way. What is less clear is the timing of such a move. The word “patient” was dropped from the rate statement and the Fed economic projection hinted at a rate cut or two in 2020. However, it’s noteworthy that eight FOMC members favor a rate cut in 2019. The markets are prepared for a move later this year, with the CME Group pricing in a rate cut in September at 62%.
GBP/USD daily graph with resistance and support lines on it. Click to enlarge:
- CBI Realized Sales: Tuesday, 10:00. Sales volumes have been showing sharp swings, which makes accurate predictions a tricky task. In May, the indicator plunged to -27, well off the estimate of 6 points. The estimate for the June release stands at zero.
- High Street Lending: Wednesday, 8:30. The number of approved mortgages continues to rise and reached 43.0 thousand in April This was above the estimate of 39.3 thousand. A slight improvement is projected for May, with an estimate of 43.2 thousand.
- Inflation Report Hearings: Wednesday, 9:15. Bank of England Governor Mark Carney and several of his colleagues will appear before a committee in parliament to discuss the latest developments. The BoE maintained interest rate levels at last week’s meeting, but lowered its growth forecast to zero, down from 0.2%.
- GfK Consumer Confidence: Thursday, 23:01. Consumer confidence remains mired in negative territory, pointing to pessimism amongst British consumers. The May release came in at -10, and the estimate for June stands at -11.
- Current Account: Friday, 8:30. The current account deficit narrowed to GBP 23.7 billion in Q4 of 2018, larger than the estimate of 22.9 billion. The markets are braced for a sharp increase in the deficit in Q1, with an estimate of GBP 32.0.
- Final GDP: Friday, 8:30. GDP is one of the most important economic indicators and should be treated as a market-mover. Preliminary GDP posted a respectable gain of 0.5% and the revised release is expected to remain unchanged.
* 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.
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 switched to a support role after strong gains by GBP/USD last 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.
I am neutral on GBP/USD
The pound recorded strong gains last week, despite a dovish BoE and soft retail sales. Will the rally continue? The U.S. economy remains strong, but increasing talk of a rate cut from the Federal Reserve could dampen investor sentiment towards the greenback.
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