GBP/USD Week Ahead Forecast: Underpinned by Thicket of Supports

• GBP/USD supported near 1.1990 & 1.1911 further down
• Meets resistance at & above 1.2143 on charts short-term
• Hawkish Fed, resilient U.S. limiting upside for GBP/USD
• Cautious BoE also a headwind going into UK GDP data
• Scope for rebound if any China stimulus lifts sentiment

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The Pound to Dollar exchange rate has remained subdued while the prospect of recovery has appeared to slip further from view in recent trade but Sterling still benefits from a thicket of technical supports located around 1.19 on the charts, which could continue to limit any losses in the days ahead. 

Pound Sterling traded within a rough 300 point range spanning the gap between 1.1911 and the 1.22 handle through much of February while the 200-day moving average at 1.1911 and 50-day average at 1.2138 have imposed similar parameters over the recent week. 

But with the UK calendar devoid of notable appointments until Wednesday's speech by the Bank of England's (BoE) Swati Dhingra, much about this week's price action is likely to depend on market appetite for the Dollar and international factors such as developments in Washington and Beijing. 

"We expect Powell to be hawkish on monetary policy given the recent run of strong US economic data. But he will need to be very hawkish for his comments to lift the USD materially," says Joseph Capurso, head of international economics at Commonwealth Bank of Australia. 

"An upside surprise for Friday’s UK GDP for January could also see some temporary volatility in GBP/USD judging by the reaction to February’s PMIs. GBP/USD faces upside resistance at 1.2246 (61.8% Fibbo)," Capurso and colleagues write in a Monday research briefing.

Above: Pound to Dollar rate shown at daily intervals with selected moving averages and Fibonacci retracements of various microtrends indicating possible areas of technical support. Click image for closer inspection. To optimise the timing of international payments you could consider setting a free FX rate alert here.

The highlight of the week in the U.S. are Federal Reserve (Fed) Chairman Jerome Powell's Tuesday and Wednesday appearances in Congress but these are followed almost immediately by the January edition of the Job Openings and Labor Turnover Survey (JOLTS) and February's non-farm payrolls report.

These will be scrutinised closely by the market given the extent to which by wage pressures resulting from the tight labour market are driving Fed policy but with expectations for interest rates rising sharply in late February, there is uncertainty over how much help this data could be for the Dollar.

"The key question is whether January's resurgence in spending and activity signals renewed momentum that will persist into the coming months, or transitory influences," says Marc Giannoni, chief U.S. economist at Barclays. 

"Although there are compelling reasons to think that the January estimates overstate the underlying momentum in the economy – including the apparent controversy surrounding seasonal adjustments around the holiday shopping season – it is difficult not to infer a fair bit of positive momentum, given the consistency of these readings across a range of indicators," Giannoni and colleagues write in a Friday research briefing. 

With U.S. Dollar factors to one side, the Pound could potentially benefit this week if the Chinese government announces any stimulus to support the pursuit of its more-modest-than-usual GDP growth target revealed at the opening of the annual Two Sessions meeting of lawmakers over the weekend.

Above: Financial model-derived estimates of probable trading ranges for selected currency pairs this week. Source Pound Sterling Live. (If you are looking to protect or boost your international payment budget you could consider securing today's rate for use in the future, or set an order for your ideal rate when it is achieved, more information can be found here.)

But without either a softer U.S. Dollar and uptick in international risk appetite, Sterling could struggle to advance by much this week and might even risk another foray below 1.20 after BoE policymakers dampened market expectations for Bank Rate last week.

"Inflation has been slightly weaker, and activity and wages slightly stronger, though I would emphasise ‘slightly’ in both cases. A further set of data will be coming in before our next monetary policy decision later this month," Governor Bailey told a Brunswick Group conference last Wednesday. 

"At this stage, I would caution against suggesting either that we are done with increasing Bank Rate, or that we will inevitably need to do more," he added. 

Trivia;

The Sveriges Riksbank of Sweden is widely accepted as being the oldest central bank of them all and the Bank of England has not begged to differ but Poland's Narodowy Bank Polski argues differently. 

"The oldest issuing (central) bank is deemed to be the Bank of England (1694), which has existed continuously to the present day. The only older European bank was the issuing bank of Sweden (1668), which went bankrupt after a short period of activity," the footnote on page 4 in An Outline History of Polish Central Banking says. 

The outlook for Bank Rate will be top of mind for the market again this Friday when the Office for National Statistics releases its initial estimate of GDP for January, which consensus sees as likely to rise by only 0.1% even in the wake of December's steep -0.5% fall.