After two weekly declines, GBP/USD was almost unchanged last week. There are four events in the upcoming week. Here is an outlook for the highlights of this week and an updated technical analysis for GBP/USD.
The fog engulfing Brexit remains as thick as ever. An embattled Prime Minister May announced her resignation on Friday, but her leadership has been so tenuous in recent months, that the move was viewed with more relief than surprise. Meanwhile, consumer inflation climbed to 2.1% in April, up from 1.9% a month earlier. This is good news for the BoE, as inflation remains close to the bank’s target of 2.0%.
The Federal Reserve released the minutes of the May policy meeting. The minutes indicated that although members are more optimistic about economic growth, they remain committed to maintaining current rate levels, given that inflation remains low. It should be noted that the policy meeting took place on May 1-2, one week before President Trump announced new tariffs on China, which has significantly escalated trade tensions between the U.S. and China.
The Fed minutes reinforced the message that no rate moves are planned until next year, but the markets aren’t buying it, with many analysts expecting at least one rate cut in 2019. The CME Group has priced in a 36% likelihood of a 25-point basis cut at the September meeting. The possibility of lower U.S. rates makes the greenback less attractive to investors and could dampen sentiment towards the U.S. dollar.
GBP/USD daily graph with resistance and support lines on it. Click to enlarge:
- High Street Lending: Tuesday, 8:30. Mortgage approvals from the major banks jumped to 40.0 thousand In March, above the estimate of 38.7 thousand. The estimate for April stands at 39.3 thousand.
- BRC Shop Price Index: Tuesday, 23:01. This consumer spending indicator slowed to 0.4% in April, marking a 4-month low. Will we see a rebound in the May release?
- GfK Consumer Confidence: Thursday, 23:01. This consumer confidence indicator has been mired deep in negative territory, with three straight readings of -13. This points to significant pessimism among consumers. Little change is expected in May, with an estimate of -12.
- Net Lending to Individuals: Friday, 8:30. Consumer credit levels have been fairly steady. In March, the indicator edged higher to GBP 4.7 billion, above the estimate of 4.5 billion. The forecast for April is 4.6 billion.
* 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 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 was tested late in 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.
I am bearish on GBP/USD
The pound has slipped 2.4% in the month of May, and last week’s pause could be the calm before further storms. Parliament remains deeply divided over Brexit, and now the markets have to contend with the Conservatives figuring out who will be the next leader. The possibility of new elections will only add to the political uncertainty.
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