GBP/USD Exchange Rate: Forecast Levels for this Week
The Pound was knocked below 1.20 against the Dollar at one stage on Monday as currency markets quickly rushed in to price a hard-Brexit into the value of Sterling.
The move came following fresh hints over the weekend that the UK Government would exit the single market as it seeks to take control over immigration policy once it has left the EU.
From a technical standpoint, there is nothing to suggest a change in the short-term downward trend for GBP/USD.
We would like it to break below the 1.2036 lows for confirmation of more downside, so pencil in this number.
Looking at the various chart patterns, the hammer which formed on January 11 may be a bullish sign for the exchange rate but alone it is not enough to signify a reversal higher.
There would have to be some follow-through to the upside for it to be significant, which there hasn’t.
The MACD remains below the zero-line indicating that the trend is bearish.
An Elliot wave analysis suggests the move down from the early December highs is probably a fifth and final wave lower, which will probably reach as low as the 1.1450 lows.
A break below the hammer lows at 1.2036 would probably lead to a c continuation down to a target at 1.1900.
Analyst David Sneddon at Credit Suisse reflects that GBPUSD's gap lower saw a test and hold of 1.1982 – the 61.8% retracement of the October/December rally.
"Although further consolidation should be allowed for here, we stay bearish and look for a break in due course for a move to 1.1855, then the target from the top at 1.1587, and more likely the 1.1491 spike low," says Sneddon.
Whilst a fresh rebound from this latter level should be allowed for, Credit Suisse look for a break in due course for a move to 1.1305/1.1260.
UK Prepared to Exit Single Market
The big news for Sterling over the weekend were reports that Theresa May will make immigration a red line in upcoming Brexit negotiations.
This suggests the UK is to give up seeking access to the European single market.
Reports have suggested she will signal pulling out of the EU single market and customs union, although Downing Street described this as "speculation".
Further details will be spelled out when Theresa May delivers a speech on the matter at Lancaster House in London on Tuesday 17 January.
Meanwhile, the UK's finance boss has changed tone and looks prepared to finally play some hard-ball with the EU.
In an interview with German Welt am Sonntag newspaper, Chancellor of the Exchequer Philip Hammond said he was "optimistic" a reciprocal deal on market access could be struck, and that he hoped the UK would "remain in the mainstream of European economic and social thinking".
"But if we are forced to be something different, then we will have to become something different," he said.
This is a warning that the UK will respond in kind to be kicked out of the single market by lowering corporation tax which would likely see businesses take a shine to the UK.
Data for the Pound
UK inflation data is released on Tuesday, January 17, at 9.30 (GMT).
CPI is expected to come out at 1.4% year-on-year in December, up from 1.2% in the previous year, and 0.3% month-on-month.
A higher-than-expected rise in CPI is likely to weigh on the Pound as it will be seen as negative for the economy.
Higher inflation will be interpreted as resulting from a weaker Pound rather than growth and will, therefore, be seen as a headwind for the economy.
Wednesday, Jan 18 at 9.30 sees the release of Employment Data, including the Unemployment Rate, Average Earnings, and the Claimant Count.
Earnings are expected to rise 2.6% rise in November, and the Claimant Count by 5.0k.
The Unemployment Rate is expected to come out at 4.8%.
On Friday, January 20, Retail Sales are scheduled for release at 9.30, and expected to show a 0.2% rise month-on-month in December.
Year-on-year, they are expected to show 7.2% growth in December.
Data for the Dollar
Monday is Martin Luther King day and a public holiday in the U.S.
Tuesday sees the release of Core CPI at 18.30 GMT, which is forecast to come out at 0.2% in December.
On Thursday Crude Oil Inventories, Building Permits and the Philadelphia Fed Manufacturing Index are released.
Building Permits are expected to rise to 1.225 million in December and the Phili Fed to pull-back to 16.0.
Pound to Dollar Forecast for This Week
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