GBP/USD lost some ground last week, as the Brexit saga continues. It promises to be a busy week. The U.K. releases CPI and retail sales, and parliament will hold another vote over Brexit. Central banks will also be in focus, with the BoE and Federal Reserve expected to maintain the benchmark rate. Here is an outlook for the highlights of this week and an updated technical analysis for GBP/USD.
The E.U. has agreed to provide a short extension to Brexit, which was scheduled to occur on March 29. However, it remains unclear how Brexit will unfold. Parliament will vote for a third time on the withdrawal agreement. A yes vote would ensure that Britain departs with a deal in place. A no vote raises a strong possibility of a hard Brexit, and could rattle the pound.
Overshadowed by the Brexit drama, the U.K. released key consumer data. CPI edged up to 1.9%, up from 1.8% in the previous release. Retail sales slowed to 0.4%, but managed to beat expectations. As well, the BoE held the benchmark rate at 0.75%, which was widely expected, given the political turmoil surrounding Brexit.
In the U.S., a sharply dovish Fed caught the markets off guard. The Fed’s rate outlook indicated that a majority of policymakers do not expect a rate hike for the rest of 2019, and the rate statement stated that economic activity “has slowed”. As well, the Fed also announced that it would stop reducing its $4 trillion balance sheet by $50 billion a month. This move is a loosening of policy and is intended to stimulate the economy. There was no relief from the Fed economic forecast, which lowered its GDP estimate to 2.1%, down from 2.3% in December.
GBP/USD daily graph with resistance and support lines on it. Click to enlarge:
- FPC Statement: Monday, Tentative. The Bank of England is also responsible for financial stability in addition to setting monetary policy, and the two things are related. Financial stability depends on economic conditions. The quarterly report provides insights into the current economic situation and could affect the direction of the pound.
- High Street Lending: Tuesday, 9:30. The figure represents around 60% of all UK mortgages and is released before the official numbers. The indicator broke above the 40-thousand level in January, for the first time since June. The estimate for February stands at 39.4 thousand.
- CBI Realized Sales: Wednesday, 11:00. After sharp swings, the indicator has been flat for two straight months. A strong improvement is expected in March, with a forecast of 5 points.
- Nationwide HPI: Thursday, 6:00. House inflation remains weak, as the indicator has posted two declines in the past three months. The estimate for March stands at a flat 0.0%.
- GfK Consumer Confidence: Friday, 12:01. This survey of around 2,000 consumers continues to point to deep pessimism. The February score came in at -13, after two straight readings of -14 points. Another reading of -14 is expected in the March release.
- Current Account: Friday, 9:30. The UK has a chronic trade balance and current account deficits. In Q3, the deficit climbed to GBP 26.5 billion, higher than expected. In Q4, the deficit is forecast to narrow to 22.9 billion.
- Final GDP: Friday, 9:30. The initial release for Q4 showed a weak gain of 0.2%. The monthly figure for February came in at 0.5%, but final GDP is projected to post a weak gain of 0.2%.
- Net Lending to Individuals: Friday, 9:30. Higher consumer borrowing levels should translate into greater consumer spending, a key driver of economic growth. Borrowing was steady at GBP 4.8 billion for a second straight month. The indicator is expected to dip to $4.6 billion in February.
- Parliament Brexit Vote: Friday, Tentative. With Brexit going right down to the wire, the drama is at a fever pitch. The E.U. has agreed on a short extension to Article 50, providing that parliament approves May’s withdrawal agreement. If the deal is shot down for a third time, all bets are off and a no-deal scenario, which could send the pound plunging, will be a possible outcome.
GBP/USD Technical analysis
Technical lines from top to bottom:
1.3615 capped the pair in late 2017. The round number of 1.35 is a pivotal line.
The round number of 1.34 is next.
1.3375 was a high point in July. It is followed by the round number of 1.3300 which saw activity during the week. It is currently a weak resistance line.
1.3217 was the high point of the pound rally in late January.
1.2910 has held in support since mid-February,
I am neutral on GBP/USD
With plenty of Brexit drama yet to come, the pound could continue to be volatile. Much will depend on the crucial parliamentary vote on the withdrawal agreement. If lawmakers give the nod to the deal, the pound will likely post sharp gains. Otherwise, there will be plenty of uncertainty and the currency could fall.
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