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GBP/USD plunged 3.6% last week, its worst weekly showing since March. The upcoming week has four events, including inflation and the Bank of England decision. Here is an outlook for the highlights and an updated technical analysis for GBP/USD.

The pound was pummeled last week, in large part due to renewed tensions over Brexit. The British government has published a bill to  which allows the UK to “disapply” parts of the withdrawal agreement it signed with the EU in January. Predictably, the EU was upset and has demanded that the bill be withdrawn.

Overshadowed by the Brexit turbulence was some strong economic data out of the UK on Friday. In July, GDP came in at 6.6%, which marked a third straight gain for the monthly GDP release. Industrial Production and Manufacturing Production both beat expectations, with gains of 5.2% and 6.3%, respectively.

In the US, unemployment claims were worse than expected. The indicator was almost unchanged at 884 thousand, higher than the estimate of 838 thousand. Inflation remained weak, as consumer inflation slowed in August. Both the headline and core readings reading dropped from 0.6% to 0.4%. Still, both releases beat their estimates. The Producer Price Index, another important inflation gauge, also slowed in August.

GBP/USD daily graph with resistance and support lines on it. Click to enlarge:

  1. Employment Report: Tuesday, 6:00. Unemployment rolls jumped 94.4 thousand in July, after a decline of 28.1 thousand beforehand. We now await the August release. Wage growth fell 1.2% in June and another decline of 1.3% is expected in July. The unemployment rate, which has been pegged at 3.9% for four straight months, is projected to climb to 4.1%.
  2. Inflation: Wednesday, 6:00. CPI accelerated to 1.0% in July, up from 0.6% beforehand. Investors are braced for a weak gain of 0.1% in August.
  3. Bank of England Rate Decision: Thursday, 11:00. The BoE shaved rates to just 0.10% in March, in an effort to stabilize the economy in the wake of the Covid-19 pandemic. Policymakers are expected to maintain rates as well as the QE of GBP 745 billion at the upcoming meeting.
  4. Retail Sales: Friday, 6:00. Retail sales slowed to 3.6% in July, after two successive months of double-digit gains. The downswing is expected to continue, with an estimate of 0.8%.

Technical lines from top to bottom:

With the pound dropping sharply last week, we start at lower levels:

There is resistance at 1.3230 (mentioned  last week).

1.3113 is next.

1.3006 is just above the symbolic 1.30 level.

1.2835 is a weak resistance line.

1.2689 is the first line of support.

1.2590 was a swing low in September 2017.

Lower, 1.25 is a round number and also worked as support in early 2017.

1.2420 is the final support level for now.

I am bearish on GBP/USD

Tensions over Brexit sent the pound on its backside last week, and with the EU and UK at odds over a range of issues, the pound could face more turbulence.

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