GBP/USD Forecast May 21-25 – Digging the bottom, Carney and inflation eyed

GBP/USD was under the cosh for another week, struggling with local data and the renewed strength of the US Dollar. What’s next? A busy week features the inflation report, speeches by Carney, Retail Sales, and more. Here are the key events and an updated technical analysis for GBP/USD.

UK wages rose by 2.6%, slightly worse than 2.7% expected. In addition, the Claimant Count Change showed a jump in jobless claims, a worrying sign. In the US, the greenback resumed its gains, using upward revisions in the retail sales report to move higher. The drivers were higher yields more than anything else. Ten-year Treasury yields reached a high of 3.13% last seen in 2011.

Updates:

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

  • Rightmove HPI: Sunday, 23:01. The earliest house price report in the UK showed a rise of 0.4% in April, slower than a jump of 1.5% in March. We will now get the numbers for May.
  • Gertjan Vlieghe talks: Tuesday, 8:15. The external BOE MPC member will testify in front of the Treasury Committee and may provide some insights about the UK economy and future monetary policy, responding to the latest data.
  • Public Sector Net Borrowing: Tuesday, 8:30. The British government had a small surplus in March, with negative net lending. This time, a net borrowing of 7.2 billion is expected. The deficit has been under control of late.
  • Inflation Report Hearings: Tuesday, 9:00. Bank of England Governor Mark Carney will testify in parliament alongside a few of his colleagues, explaining the recent Quarterly Inflation Report and also answering questions from MPs. The grilling usually takes a long time and Carney may try to refrain from any earth-shattering comments. Nevertheless, markets usually move.
  • CBI Industrial Order Expectations: Tuesday, 10:00. The Confederation of British Industry has shown stability in industrial order expectations in April, with a score of 4. A drop to 2 points is expected now. The positive numbers represent increasing volume.
  • Inflation data: Wednesday, 8:30. Alongside other signs of a slowdown, UK inflation decelerated to 2.5% in March, more than had been expected. It lowered the expectations for a rate hike. The same level of annual inflation is projected for April. Another slowdown in inflation could weigh heavily on the pound. Core CPI is projected to slow from 2.3% to 2.2%. The Retail Price Index (RPI) carries expectations for a rise from 3.3% to 3.4% while PPI Input is expected to jump by 0.1% m/m after falling by 0.1% last time.
  • Mark Carney talks Thursday, 8:00 (opening remarks), Thursday evening (at the Society of Professional Economists’ annual dinner) and Friday (a panel about the future of central banking). These three appearances join his testimony earlier in the week. The first appearance is unlikely to yields any market moving comments while the next two events could provide action. Markets would like to know whether the BOE still intends to raise rates this year as doubts continue creeping in.
  • Retail Sales: Thursday, 8:30. Brits disappointed with far less shopping than expected in March: a drop of 1.2% was recorded in retail sales. This time, a bounce worth 0.8% is on the cards. Bad weather was associated with the downfall and the first full month of Spring could reveal if the downturn was only temporary.
  • GDP (second release): Friday, 8:30. The first report of UK GDP in Q1 was a big disappointment: 0.1% q/q and 1.2% y/y, well below expectations. Bad weather was partly to blame. The second release is expected to show an upgrade to 0.2% q/q and 1.3% y/y. The Bank of England expects the economy to pick up in Q2.
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  • * All times are GMT

    GBP/USD Technical analysis

    Pound/dollar struggled and dropped to the 1.3460 level (mentioned last week).

    Technical lines from top to bottom:

    1.3890 served as support in mid-March and maintains its role. 1.3790 was a swing low in mid-March.

    Further below,1.3780 was a line of support in March and 1.3710 was the lowest point since early in the year.

    Even lower, 1.3615 capped the pair in late 2017. The round nubmer of 1.35 is a pivotal line.

    1.3460 was a swing low in early 2018 and remains relevant. The round number of 1.34 could provide further support.

    Further down, only 1.33 works as a significant line of support. These are levels dating back to 2017.

    I remain bearish on GBP/USD

    Complications in the Brexit negotiations and a weakening economy could continue weighing on the Pound. In the US, even if the Fed is not overly hawkish, they are still raising rates.

    Our latest podcast is titled Stormy times ahead or just a moderation?

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    Further reading:

    • EUR/USD forecast – for everything related to the euro.
    • USD/JPY forecast – projections for dollar/yen
    • AUD/USD forecast – predictions for the Aussie dollar.
    • USD/CAD forecast – Canadian dollar analysis
    • Forex weekly forecast – Outlook for the major events of the week.

    Safe trading!


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