GBP/USD posted sharp gains on Friday and climbed 1.75% last week. The U.K. releases consumer inflation and retail sales, and the BoE will announce its rate decision. Here is an outlook for the highlights of the upcoming week and an updated technical analysis for GBP/USD.
Strong data out of the U.K. helped send the pound to a banner week. GDP improved to 0.3% in July, up from zero in June. Manufacturing Production rebounded 0.3% in July, after a decline of 0.2% in the previous release. There was more positive news from the employment sector, as wage growth jumped 4.0%, its sharpest gain since 2010.
Over in the U.S., consumer inflation reports were a mixed bag. CPI slipped to 0.3%, down from 0.1%, but this matched the estimate. Core CPI remained steady at 0.3%, edging above the forecast of 0.2%. The week wrapped up with retail sales, which slowed considerably in August. Retail sales fell to 0.4%, down from 0.7% a month earlier. Core retail sales slowed to zero, compared to 1.0% in the previous release. It was the first time that core retail sales failed to record a gain since March.
GBP/USD daily graph with resistance and support lines on it. Click to enlarge:
- Inflation Data: Wednesday, 8:30. CPI has been hovering close to the 2.0% level, which is the BoE’s inflation target. However, inflation is expected to slow to 1.8% in August. Core CPI is projected to tick lower to 1.8% in August, down from 1.9% a month earlier.
- Retail Sales: Thursday, 8:30. Retail sales slowed to 0.2% in July, down sharply from 1.0% in June. The markets are braced for a decline of 0.2% in the August release.
- BoE Rate Decision: Thursday, 11:00. No surprises are expected from the BoE at the upcoming policy meeting. The BOE is projected to maintain the benchmark rate at 0.75% and the QE program at 435 billion pounds. The Monetary Policy Committee (MPC) voted unanimously to maintain this policy in the previous meeting and the same voting pattern will likely be repeated.
GBP/USD Technical analysis
Technical lines from top to bottom:
With GBP/USD posting sharp gains, we start at higher levels:
We start with resistance at 1.2910. This line has held since mid-May.
1.2850 capped recovery attempts in late November. 1.2728 is next.
1.2616 has provided resistance since early July.
1.2535 is under pressure, following sharp gains by GBP/USD last week.
1.2420 has switched to support role.
1.2330 is next.
The round number of 1.22 was an important support level in December 2016.
1.2080 is protecting the symbolic 1.20 level. It is the final line for now.
I remain bearish on GBP/USD
The pound has defied expectations with strong gains recently. Still, investors remain nervous over Brexit, and the pound is likely to face further headwinds with London and Brussels continuing to bicker over the terms of a withdrawal agreement.
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