The GBP/USD: Forecast, News and Events Over the Next Five Days

In the last three weeks, the Pound to Dollar pair has fallen from the 1.32s to the 1.28s, as the Pound has weakened due to concerns about economic uncertainty linked to Brexit. 

From a technical perspective, the exchange rate could still continue falling, in an extension of the mini-downtrend, however, we see downside capped by the major Trendline (A) at about the 1.2800 level, and it would require a substantial break below that, confirmed by a move below 1.2750, for example, to signal yet more downside. 

Other technical evidence also points to more downside, such as the MACD momentum indicator, which has broken below the key zero-level, signalling that the dominant trend is now down. 

News and Events for the Dollar 

The main data release in the coming week fall in the second half of the week. 

The US Manufacturing and Services sector Purchasing Manager Indices are out at 14.45 BST on Wednesday, and are both expected to show a rise, with the former from 53.3 to 53.4 and the later 54.7 to 54.9. 

New Home Sales in July are forecast to show a 610k rise the same as they did in June, and a 0.8% rise month-on-month. 

Existing Home Sales are scheduled for release at 15.00 on Thursday, August 24, and are forecast to show a 0.7% rise compared to the -1.8% previously. 

Housing is said to “lead the economy” according to financial lore so these metrics are important for monitoring not just the health of the housing market but also of the economy. 

On Friday, August 25 the Federal Reserve Chair Janet Yellen will be giving a speech a Jackson Hole on “Financial Stability”, and according to commentators there is a risk that she could call for a speedier rise in interest rates in order to avoid the risk of overborrowing. 

“A risk is that she elevates concern about financial stability as a factor which would warrant a more aggressive path of rate hikes. This would be hawkish; we expect more neutral remarks. That said, the July minutes point to rising concern on this topic by some of the FOMC,” said Canadian investment bank (IB) TD Securities. 

Durable Goods orders are out on Friday at 13.30 and expected to drop dramatically by -5.8% in July as “headline strength” full unwinds, “led by a reversal in nondefense aircraft and another contraction in motor vehicles,” said TD. 

News and Events for the Pound 

The week starts off with Public Sector Net Borrowing in July, at 9.30 BST on Monday, which is forecast to show the British government borrowing 0.5bn more than it did in July 2016 when it borrowed 6.28bn less.

The Consortium of British Industry (CBI) Industrial Trends Survey for August is out at 11.00 on Tuesday, August 22, with forecasts of the ‘balance’ – of “yes” to “no” responses – expected to rise to 10, from 8 in the previous month. 

Thursday is the main day for Sterling in the week ahead from a data perspective, and the second estimate for GDP in the second quarter, is probably the main release. 

Q2 GDP rose by 1.7% according to the first estimate, and the second estimate is expected to show no-change from this; the Q1 estimate showed growth of 2.0%. 

Mortgage Approvals are expected to show 40.2 thousand more approvals in July, according to data from the British Banking Association (BBA) out at 11.00 on Thursday. Some forecasters have stated they will rise to 40.9. 

Mortgage approvals have formed a compelling triangle-shaped pattern when seen charted over recent years (see below). 

According to research, triangles have a minimum of five component waves, and this pattern has formed fives waves already, labelled a-e, and as such could be complete. 

The next move would be expected to be a breakout either higher or lower, however, what is highly probable is a period of high volatility in the not too distance future. 

As we noted last month when making the same analysis of mortgage approvals, a reading of above 47,500 would indicate an upside breakout to a target of 55k whilst a reading below 37k would lead to a breakdown to a target at 30k. 

Finally, Business Investment is a major release for the Pound, also out on Thursday, at 9.30 BST. 

Markets will be following the release closely as Investment has been unexpectedly strong since the referendum when it was one of the things which was expected to be hit hardest, given companies need certainty before making investment commitments. 

If investment continues to remain robust that may well help the Pound. 

Finally, towards the end of the week the main event for financial markets will be the Jackson Hole symposium in the US, where central bankers will be meeting to discuss monetary policies and the global economy, and where Bank of England governor Carney, may well contribute to the flow of commentary.