Pound-to-Dollar Week Ahead Forecast: Looking for the Bottom to Solidify
- Technicals point to potential for an end to GBP/USD losses
- Sterling will be subject to EU summit outcome on Brexit
- Key for GBP/USD will be whether broader Dollar bull run extends next week
The past week saw a sharp turn in fortunes for the Pound against the US Dollar after price action signalled the potential for an end to a well entrenched sell-off in the exchange rate, and over coming days we will be looking to see whether the move represents a genuine turning point.
The Pound enjoyed a sharp rebound on Thursday, June 21 in the wake of the Bank of England policy event that surprised markets by suggesting an interest rate rise is likely in either August or November.
GBP/USD opened the day at 1.3174 and closed the day at 1.3242 with the positive momentum heading into the final session of the week as the exchange rate ended at 1.3263.
A good portion of the technical analysis community believe the improved price action witnessed in GBP/USD is indicative of a potential for a broader turning in fortunes for the Pound, at least on a short- to medium-term basis.
"The impulsive reversal from 1.3120 is the kind of price action we are looking for to signal a base developing," says Robin Wilkin, a strategist with Lloyds Bank. "Ideally, we are looking for a move back towards the 1.38-1.40 region, which should define the top of a medium-term range."
"GBP/USD charted a key day reversal. When we couple this with the TD perfected set up on the weekly chart it is time to exit short positions," says analyst Karen Jones with Commerzbank.
The outlook for the week ahead is therefore a great deal more positive than it has been for some time now, from a technical perspective at least.
Those watching the Sterling-Dollar market should however be aware that the lion's share of the move in this pair resides with movements in the US Dollar. Therefore much will depend on how the Greenback behaves over coming days.
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The Dollar's Week Ahead
What has been driving the Dollar higher of late?
The difference in policy settings between the US Federal Reserve and other central banks is key - where the Fed is raising rates, the rest of the world are either doing so at a much slower pace, or not at all.
This creates a divergence that has been playing in favour of the Dollar as investor capital flows from areas where interest rates are low to where they are higher as investors seek better returns.
US trade policy is now a big factor - as US President Trump ups the ante, so markets run scared and investors liquidate a portion of their holdings and often they are liquidated into Dollars. Hence, trade war rhetoric is playing positive for the Dollar.
In the week ahead keep an eye on the headlines and Trump's next moves, there is a good chance he will turn his guns on Europe having focussed on China over recent days. Indeed, threats of tariffs on European cars are now being reported.
On the US economic docket, we are watching new home sales on Monday, due for release at 15:00 B.S.T. The reading for May is forecast to read at 667K. A beat on this figure could aid the USD which has drawn strength of late from the economy's strong performance.
Household confidence is key to the economy's ongoing strong performance.
Watch pending home sales on Wednesday, June 27 at 15:00 for a continuation of the above theme, markets are forecasting a 0.6% increase for May.
On the same day, but out at 13:30 we have durable goods orders for May due, this should also provide evidence of how the economy is performing. Markets are forecasting a reading of -0.6% on a month-on-month basis and a 0.4% for the core durable goods figure.
A beat or miss on the above could sway the USD in the short-term.
Thursday, June 28 sees a revision to the Q1 GDP numbers released, will the 2.2% figure be confirmed? As this is a revision we doubt it will have a sizeable impact on currency markets.
The Pound's Week Ahead: EU Summit
Brexit is front and centre for Sterling in the coming week with the European Council set to meet on June 28-29. Brexit will be discussed on Friday, June 29 from 08:00 B.S.T onwards, so look for headlines concerning the matter to be delivered throughout the day.
We have seen over recent days a further ramping up of Brexit headlines ahead of the summit, with both sides engaged in jockeying, but, remarkably the Pound has hardly moved on the headlines.
Markets are simply looking for concrete outcomes that give a clear view on what the future will look like. Perhaps this week we will get such outcomes.
On the data and domestic events calendar, watch Governor Mark Carney set to make a speech on the morning of Wednesday, June 27. The Bank of England proved to be a big mover of Sterling in the week past when it telegraphed the potential for interest rate rises over coming months, and markets will be looking out for any further information concerning policy matters. We can't however at this stage say whether this scheduled speech will touch on monetary policy.
Data is all second-tier in nature with a revision to Q1 GDP being tipped for Friday. Markets are looking for the 0.1% growth that was initially reported to be confirmed by the ONS.
With the EU summit due on the same day we are confident in suggesting this will matter little for markets.
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