GBP/USD resumed its losing ways, posting considerable losses. There are five events on the calendar. Here is an outlook for the highlights of the upcoming week and an updated technical analysis for GBP/USD.
Elections to the European Parliament showed a surge in support for far-right parties across Europe, and the U.K. Brexit party was one of the big winners. The party won 29 seats, compared to 10 for Labour and just 4 for the Conservatives. A chastised Prime Minister May tweeted that it “was a very disappointing night for the Conservatives”. British voters sent a stinging message to the Conservatives and Labour for their handling of Brexit, which has dragged on past the original deadline, with no solution in sight. For investors, the worst-case scenario is a no-deal exit, which could undermine the economy and send the British pound sharply lower.
Tensions between the U.S. and China remain high, with no talks scheduled between the sides. On Friday, President Trump threatened to slap tariffs on all Mexican products, due to the illegal immigration problem. Although Trump said that tariffs would be set at just 5%, stock markets reacted with sharp losses, and a trade war between the U.S. and Mexico could hurt the pound if investors prefer the safety of the U.S. dollar.
GBP/USD daily graph with resistance and support lines on it. Click to enlarge:
- Manufacturing PMI: Monday, 8:30. The PMI continues to indicate expansion, but has been slowing in recent months. The PMI dropped to 53.1 in April and the estimate for March stands at 52.5.
- BRC Retail Sales Monitor: Monday, 23:01. The shop spending indicator posted a strong gain of 3.7% in April, after a decline of 1.1% a month earlier. The forecast for May stands at 0.9%.
- Construction PMI: Tuesday, 8:30. The construction sector continues to struggle, as the PMI came in at 50.5 in April, which points to stagnation. The estimate for May stands at 50.6.
- Services PMI: Wednesday, 8:30. The services industry is also pointing to stagnation, and the PMI came in at 50.4 in April. Little change is expected in May, with an estimate of 50.6.
- Consumer Inflation Expectations: Friday, 8:30. This official gauge from the Bank of England is released each quarter. The indicator has been steady, posting two straight gains of 3.2%.
GBP/USD Technical analysis
Technical lines from top to bottom:
1.3170 was a swing high in early November.
1.3070 was a high point in mid-November.
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.
Lower, 1.25 is a round number and also worked as support in early 2017. Further down, 1.2420 and 1.2330 are notable.
1.2206 is the final support level for now.
I am bearish on GBP/USD
Rising trade tensions and a deadlock over Brexit is not a winning recipe for the pound, which fell 3.10% in the month of May. With the U.S. economy posting Q1 growth above 3%, the U.S. dollar should remain attractive to investors.
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