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GBP/USD Forecast Feb. 18-22 – Pound Slide Continues As U.K Economy Slows Down

Summary

Brexit weighs on the economy.

Hopes for a delay keep the pound bid.

The jobs report will try to compete with Brexit headlines.

GBP/USD declined for a third straight week, falling 2.3% in that time. Wage growth and unemployment rolls are the key events in the upcoming week. Here is an outlook for the highlights of this week and an updated technical analysis for GBP/USD.

Key British indicators headed lower last week, weighing on the pound. The British economy slowed down in the fourth quarter, with a weak gain of 0.2%, compared to 0.6% in the third quarter. Manufacturing production slipped 0.7% and has now posted five declines in the past six months. On the inflation front, CPI slowed to 1.8%, the first time it has fallen below the 2.0% level in two years. The pound ended on a positive note, as retail sales rebounded with a strong gain on 1.0%, beating expectations. In the U.S., consumer spending had a dismal January, with retail sales and core retail sales recording sharp declines.

GBP/USD daily graph with resistance and support lines on it. Click to enlarge:

  1. Rightmove HPI: Monday, 00:01. This housing inflation indicator improved in February, after recording sharp declines in the previous two months.
  2. Employment Data: Tuesday, 9:30. Wage growth has strengthened in recent months, even with inflation numbers falling. Wages climbed 3.4% in November and the estimate for December stands at 3.5%. Unemployment rolls edged lower in December and are expected to drop sharply in January, with an estimate of 12.3 thousand. Unemployment is at very low levels and is expected to remain pegged at 4.0%
  3. CBI Industrial Order Expectations: Wednesday, 11:00. The manufacturing indicator came in at -1 in January, after posted two successive gains. The markets are braced for a sharp drop of -5 points in February.
  4. Public Sector Net Borrowing: Thursday, 9:30. The U.K. is expected to post a rare budget surplus, with an estimate of GBP 11.1 billion. A large surplus could improve investor sentiment and boost the British pound.

GBP/USD Technical analysis

GBP/USD posted losses for much of the week, but ended the week with gains, as 1.2910 remains a resistance line (mentioned last week).

Technical lines from top to bottom:

1.3375 was a high point in July. It is followed by 1.3300, which was the high point in September and also a psychologically important round number.

1.3217 was the high point of the pound rally in late January.

1.3170 was a swing high in early November. 1.3070 was a high point in mid-November. The symbolic number of 1.3000 provided support to the pair in late September.

1.2910 was a high point in late November and was tested in support last week.

1.2850 capped recovery attempts in late November.

1.2728 was active in the first half of January.

1.2616 is next.

1.25 is a round number and also worked as support in early 2017.

I remain bearish on GBP/USD

With just six weeks until the U.K. leaves the European Union, the uncertainty continues. Will the sides reach a last minute deal, or will the U.K. crash out? Further adding to the woes of the pound, the global trade war has dampened manufacturing and export sectors in the U.K.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.