GBP/USD Forecast Aug. 3-7

GBP/USD  changed directions last week and  gained close to 100 points. The pair closed the week at 1.5615. This week’s highlight is the PMIs and Manufacturing Production. Here is an outlook on the major events moving the pound and an updated technical analysis for GBP/USD.

In the US, the Federal Reserve remained cautious in its policy statement but did acknowledge improvement in the US economy. Advance GDP rebounded with a gain of 2.6% in Q2, but this fell short of the estimate. UK Preliminary GDP gave a boost to  the pound, as the key indicator  jumped 0.7%, matching the estimate.

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

1. Manufacturing PMI:  Monday, 8:30. The week kicks off with Manufacturing PMI, a key indicator. The index has been hovering slightly above the 50 line, which separates contraction from expansion. The forecast for the July release stands at 51.6 points.
2. Nationwide HPI:  Tuesday, 6:00. This housing inflation indicator provides a snapshot of the level of activity in the UK housing sector. The index declined by 0.2% in June, its first decline in four months. July is expected to be stronger, with a forecast of +0.4%.
3. Halifax HPI:  Tuesday, 4th-7th. The index rebounded strongly in June, with a gain of 1.7%. The forecast for the July report is a modest gain of 0.5%.
4. Construction PMI: Tuesday, 8:30. This PMI improved in June to 58.1 points, beating the estimate of 55.6 points. The upward trend is expected to continue in July, with an estimate of 58.6 points.
5. 10-year Bond Auction: Tuesday, Tentative. The 10-year bond  broke above the 2.00% level in June, with a yield of 2.02%. This was up from 1.88% in April.
6. Services PMI: Wednesday, 8:30. Services PMI continues to point to expansion, as the index improved to 58.5 points in June, above the forecast of 57.4 points. The estimate for the July report stands at 58.1 points.
7. Manufacturing Production: Thursday, 8:30. This is a key indicator which should be treated as a market-moving event. The indicator has struggled lately, posting two straight declines and missing expectations on both occasions. The markets are expecting better news in the June reading, with an estimate of +0.2%.
8. BOE Inflation Report: Thursday, 11:00. This report is released on a quarterly basis, and details the BOE’s inflation projections for the next two years. BOE Governor Mark Carney will host a press conference following the release of the report.
9. Official Bank Rate: Thursday, 11:00. The BOE is expected to keep the benchmark rate pegged at 0.50%.
10. Asset Purchase Facility: Thursday, 11:00. No change is expected in QE, which currently stands at 375 billion pounds.
11. NIESR GDP Estimate: Thursday, 11:00. This monthly indicator helps analysts track GDP, which is only released on a quarterly basis. The indicator edged higher to 0.7% in June, marking a 5-month high.
12. Trade Balance: Friday, 8:30. The trade deficit narrowed for a third straight month, falling to GBP-8.0 billion in May. This was much lower than the forecast of GBP-9.7 billion. However, the markets are braced for a downturn in the June reading, with an estimate of GBP-9.1 billion.

* All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.5520 and  quickly touched a low of 1.5489. The pair then reversed directions,  climbing to a high  of 1.5690, as  it tested resistance at 1.5682 (discussed last week). The pair closed the week at 1.5615.

Live chart of GBP/USD: [do action=”tradingviews” pair=”GBPUSD” interval=”60″/]

Technical lines from top to bottom

We  start with resistance at 1.6133, which was an important support level in the first half of 2014.

1.6006 is protecting the symbolic 1.60 level.

1.5909 has  held firm as resistance since November 2013.

1.5769 is the next resistance line.

1.5682  was  tested last week. It was an  important cap in December 2014 and January 2015.

1.5590 has switched to support following strong gains by the pound.

1.5485 is the next support level.

1.5341 has held firm since mid-June.

1.5269 was an important support level in March.

1.5163 is the  final support line for now.

I am  neutral on GBP/USD.

With the US economy showing some strong numbers for Q2, speculation remains high that rates will rise, perhaps as early as September. British data has been solid, helping the pound gain ground against the greenback. If this week’s PMI reports are strong, the pound could move higher.

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Further reading:

• For a broad view of all the week’s major events worldwide, read the USD outlook.
• For EUR/USD, check out the Euro to Dollar forecast.
• For the Japanese yen, read the USD/JPY forecast.
• For the kiwi, see the NZD/USD forecast.
• For the Australian dollar (Aussie), check out the AUD to USD forecast.
• For the Canadian dollar  (loonie), check out the USD to CAD  forecast.