GBP/USD Weekly Price Forecast – British Pound Continues to Look Strong

The British pound has rallied significantly during the course of the week, reaching towards the 1.40 handle. At this point, we now face the next resistance barrier.

The British pound has rallied significantly during the course of the trading session to show signs of life again, as the market is more than likely going to try to move against the US dollar in one fell swoop. That being said, the 1.40 handle is an area that has been significant resistance in the past, so I would not be surprised at all to see a little bit of a pullback. If and when we can break above that 1.40 level though, then it is likely we go looking towards 1.42 handle, which is where we have seen a massive amount of resistance in the past. Ultimately, this is a market that I think will continue to see choppy behavior, and as we head into August, I think we will see a little less in the way of momentum.

When you look at the 1.42 handle, it is an area that has been like a brick wall for several years, and I think breaking above there would make this market a longer-term “buy-and-hold” type of situation. I do not necessarily see that happening easily, and I do not necessarily see that happening in the next week or two. I think this is more or less going to be a bit of a grind higher, especially as we head into what is traditionally one of the quietest times of the year.

That being said, if we pull back it is likely that we will go looking towards the 1.37 handle underneath, where we launched from earlier this week. Ultimately, this is a market that needs to make up its mind for a bigger move.

GBP/JPY eases below 153.00 as Brexit, covid updates test bulls

• GBP/JPY steps back from 13-day top, under pressure of late.
• UK, EU warned over NI protocol deadlock even as policymakers brace for further talks.
• UK’s daily infections rise for second day but weekly count falls 22%, Japan braces to take more prefectures under emergency.

GBP/JPY justifies the previous day’s Doji candlestick formation with a pullback to 152.85 ahead of Friday’s Tokyo open.

The cross-currency pair jumped to the highest since July 13 on Thursday after Brexit optimism and weaker yen favored bulls. However, fresh chatters over Brexit and coronavirus tames the prior risk-on mood.

“The UK and EU have both taken a ‘fundamentally flawed’ approach to the Northern Ireland Protocol, a House of Lords committee has concluded,” said the BBC. Before that, the British and European Union (EU) policymakers were optimistic over holding further negotiations to tackle the Northern Ireland (NI) protocol issue.

Elsewhere, Britain’s 31,117 daily coronavirus cases mark the second day of increase but fall 22% during the last seven days. Alternatively, Japan’s covid numbers cross the 10,000 mark for the first time and push the policymakers to re-think emergencies in more prefectures. Japan’s Kyodo News quotes anonymous government sources in this regard while saying, “The government is planning to add three prefectures neighboring Tokyo, as well as Osaka Prefecture, to areas under the COVID-19 state of emergency amid a resurgence of the coronavirus.”

On a different page, downbeat US data backed the market’s hope for further stimulus, favoring the risk-on mood. Also backing the optimism is the current talks over US President Joe Biden’s infrastructure spending plan in the American Senate.

Amid these lays, S&P 500 Futures drop 0.35% after rising around half a percent to refresh the record top on Wall Street.

Looking forward, Japan’s preliminary reading of June’s Industrial Production and Retail Sales for May can entertain the pair traders. However, qualitative catalysts are more important for fresh direction, likely towards the south.

Technical analysis

A Doji on the daily chart below 50-DMA, near 153.55, suggests further pullback of GBP/JPY. However, 100-DMA tests intraday sellers around 52.60.

EUR/USD rises further to three-week highs, eyes 1.1900

The EUR/USD is rising for the fifth consecutive day on Thursday, boosted by a decline of the US dollar across the board. It is trading at 1.1890, at the highest level since July 6, on its way to the best week in three months.

During the American session, the US dollar dropped, further supporting the upside in EUR/USD. Economic data from the US contributed to the decline. Growth during the second quarter came in at 6.5%, below the 8.5% expected; initial jobless claims fell to 400K, a reading worse than consensus; and pending home sales declined 1.9% in June against expectations of a modest increase.

Economic figures added fuel to the slide of the greenback that started on Wednesday following the FOMC meeting. The DXY is down by 0.41%, at 91.90, the lowest level in a month. At the same time, US yields are hovering around recent levels. Equity prices are up in Wall Street. The Dow Jones gains 0.55% and the Nasdaq 0.45%. The risk-on environment weighs on the dollar.

The EUR/USD is looking at the 1.1900 area. Currently is testing the 1.1890 resistance area and a break higher should lead to further gains above 1.1900. The next resistance stands at 1.1920/25. The positive tone is likely to remain intact while above 1.1840; the next support is the 20-day moving average at 1.1820.

GBPUSD and USDCAD Breakout Dispute EURUSD Hold as Risk Trends Plunge

S&P 500, Crude Oil, Risk Trends, Dollar and GBPUSD Talking Points:

• Despite an empty docket to start this week, markets opened to a broad and intense risk aversion with motivation coming as an after thought
• The S&P 500 broke trendline support and the Dow suffered its worst day in 8 months, but potential arises from the breadth of the risk aversion
• While the Delta variant, growth and monetary policy were all in headlines; risk aversion seemed to be the root of the market’s move

An Unexpected Fire In US Equities

If we were going by the economic calendar, it was looking like we were heading into the full lull of the summer doldrums. What we have seen thus far could not be further from those expectations. A strong downdraft in some of the most closely watched risk assets proved not simply an isolated bout of volatility. The risk aversion proved broad for both region and asset type which goes a long way to raising the threat that this was not simply a short-lived shudder from a thinned market. All traders should be on high alert, but there is strong precedence recently to maintain a sense of skepticism given a host of false starts across the financial system over these past months. It is difficult to override an undercurrent of illiquidity and upend a deep complacency born out of borrowed time and massive stimulus programs. As such, I’m eying the S&P 500’s first break of trendline support stretching back to the post-pandemic recovery and the Dow’s biggest daily drop since October for evidence that momentum is shifting to full panic-led deleveraging.

Chart of the S&P 500 with 20 and 100-Day Moving Avgs and Gaps (Daily)

Chart Created on Tradingview Platform

One of the more reliable measures for carrying forward a systemic sentiment shift is to establish a fundamental root to the move. Event risk in the opening 48 hour of this week (Monday behind us and Tuesday ahead) is particularly light and doesn’t get close to hitting the nerve of the more effective themes that have driven the market lately. A growing reference in headlines and in trader circles is the reference to the rising numbers of coronavirus cases in countries like the US that are reopening as the Delta variant spreads. Alternatively, the slowing in growth trends seen in recent data points (and perhaps with Friday’s PMIs) could give weight to the breakdown in crude oil and the US 10-year Treasury yield. Or, perhaps the recognition of a global shift in monetary policy towards normalizing from an extremely easy path is finally catching up to speculators after weeks of building evidence? It is all possible, but I believe this is more of a risk-first move with explanation coming later. This could prove the most capable universal motivation for markets, but it could also snuff out a nascent trend should liquidity dry up quickly.

Chart of Crude Oil Active Futures Price with Volume, 20 and 100-SMA and 1-Day Change (Daily)

Chart Created on Tradingview Platform

Visualized another way, the below intensity curve helps me better assess the standings of conviction. When risk trends take command of investors the world over, it can be difficult the momentum that results. However, getting that traction in the first place can prove quite the feat. While there was some moderate risk aversion to end this past week, the truly comprehensive move didn’t register until Monday. After correlation and intensity, follow through is the most important feature of a productive trend. At what point does one call a trend? That’s up for discretion, but at a minimum I would look for a second day’s follow through.

Chart of S&P 500 Overlaid with Aggregate of Major Central Banks’ Stimulus (Monthly)

Chart Created by John Kicklighter with Data from Central Banks

The Dollar’s Bullish Break Doesn’t Register as an ‘Extreme’ Haven Demand

While much of the interest through the opening session of the week may have gone to indices and other overt risk measures, I was also keeping an eye on assets that orient more towards the haven side. In particular, the FX market’s Dollar and Yen crosses were of particular interest. For the Yen pairs, there was a broad enough slide (the Japanese currency rising) that it would also pull down USDJPY. That is a combination of two generic havens, but the Greenback usually appeals in more extreme scenarios. If we were to look at the Dollar by itself, the DXY trade-weighted index struggled to push higher. That said, it is heavily weighted towards EURUSD, a pair that is rooted more in its liquidity rather than its ‘risk’ contrast. If there is a second day of risk aversion, however, the smallest 10-day range in 18 months is likely to provide a critical break.

Chart of the EURUSD with 20 and 100-SMA and 10-Day Historical Range (Daily)

Chart Created on Tradingview Platform

Elsewhere, managed to produce some impressive bullish breakouts against key counterparts. GBPUSD isn’t particularly known for its contrast on the risk spectrum, but it seemed tuned to the day’s volatility. A break of 1.3700 has brought the pair to a six month low by way of a prominent trendline support breakdown and subsequent clearance of the 200-day moving average – the first slip below this measure in 257 trading days.

Chart of the GBPUSD with 100 and 200-Day Moving Average (Daily)

Chart Created on Tradingview Platform

Another incredibly impressive break in the Dollar’s favor came from USDCAD. Already measuring out progress – like the AUDUSD’s head-and-shoulders break a month ago – the ‘Loonie’ cross similarly cleared its own 200-day moving average over a similar time frame as well as the historical midpoint for the pair at 1.2600. For scale this is perhaps the most impressive clearance. Yet, for it to truly matter, there needs to be follow through. A break alone, even one as steeped in technical renown as this, is no guarantee of trend.

Chart of the USDCAD with 100 and 200-Day Moving Average and 1-Day Rate of Change (Daily)

British Pound (GBP) Weekly Forecast: On Alert for Comments from BOE Members Forex Daily Outlook

GBP ANALYSIS & NEWS

• Hawkish comments from BOE members keep GBP supported
• GBP/USD struggles to keep hold as EUR/GBP looks to break out of descending channel

Despite a tough week for GBP/USD the Pound remains supported by expectations of a more hawkish Bank of England. The lead-up to the August MPC meeting is drawing more attention as markets increase odds that the BOE will start amending its monetary policy to adapt better to current economic conditions.

Michael Saunders was the focus point on Thursday when he mentioned that inflation could prove to be stubbornly high in the coming months, hinting at the possibility of an interest rate in the first half of 2022. Prior to that, Ramsden had made a similar argument regarding the rapid developments since the last forecast was published in May, which had allowed for considerations of tapering sooner than originally expected.

Looking ahead at the UK calendar for next week, we’ll have another BOE member speaking on Monday (Haskel) and then little else until the June retail sales and PMIs are published on Friday.

Despite a tough week for GBP/USD the Pound remains supported by expectations of a more hawkish Bank of England. The lead-up to the August MPC meeting is drawing more attention as markets increase odds that the BOE will start amending its monetary policy to adapt better to current economic conditions.

Michael Saunders was the focus point on Thursday when he mentioned that inflation could prove to be stubbornly high in the coming months, hinting at the possibility of an interest rate in the first half of 2022. Prior to that, Ramsden had made a similar argument regarding the rapid developments since the last forecast was published in May, which had allowed for considerations of tapering sooner than originally expected.

Looking ahead at the UK calendar for next week, we’ll have another BOE member speaking on Monday (Haskel) and then little else until the June retail sales and PMIs are published on Friday.

UK ECONOMIC CALENDAR PROVIDED BY DAILYFX

Looking at GBP crosses, GBP/USD is threatening to break below 1.30 if the pair is unable to hold above its 200-DMA (1.3808) going into the new week. The Stochastic is showing a slightly negative bias in the short term but there is still room for a swing upwards towards 1.39, which is proving to be a tough resistance to crack. For EUR/GBP the pressure continues to be tilted to the downside as the pair was nearing the 0.85 mark earlier on in the week as it attempts to consolidate and break out of the descending channel it has been trading in for the last 3 months. A break below this area is likely to lead to a new attempt at breaking below the yearly low seen in April at 0.8472.

GBP/USD DAILY CHART & EUR/GBP WEEKLY CHART