The GBP/USD pair has been rallying sharply for a couple of weeks since Mark Carney and the Bank of England hinted at a possible rate hike in 2014. Meanwhile, the FOMC stayed put and did not seemed to move policy expectations despite inflation picking up in May. Let’s take a look at the key fundamental risks for this pair in the upcoming week, as well as the technical development in the GBP/USD.
(Bank of England Governor, Mark Carney)
Monday: US Manufacturing and Housing Data
US Flash Manufacturing PMI (June): Forecast 56.1, Previous 56.4. Manufacturing has been in expansion throughout 2014. A reading around 56 reflects the steady pace of manufacturing. A surprise reading close to 60 could give USD a jolt. A disappointing reading below 50, which would reflect contraction would likely pressure the USD.
Existing Home Sales (annualized, May): Forecast 4.74M, Previous 4.65M. Existing home sales has been soft after peaking at 5.48M in August 2013. The lowest point in 2014 was the 4.59 reading for March. Inability to rebound from that March low can give the USD some pressure within the trading session.
Tuesday: Mark Carney Speaks, US CB Consumer Confidence and New Home Sales.
BoE Governor Mark Carney will be speaking at the treasury committee hearing in London.
US Conference Board Consumer Confidence (June): Forecast 83.6, Previous 83.0. Conference Board’s consumer confidence reading is expected to climb to a high on the year and the highest since the 2007-2008 financial meltdown.
US New Home Sales (annualized, May): Forecast 442K, Previous 433K. New home sales has been choppy in 2014. It picked up to 433K in April after falling to 384K in March. If this reading climbs above 500, it could reflect housing recovery should.
Wednesday: US Durable Goods, final GDP
US Durable Goods (m/m, May): Forecast -0.1%, Previous 0.6% (revised down from 0.8%).
Core Durable Goods (m/m, May) Forecast: 0.3%, previous 0.3% (revised up from 0.1%). Durable goods are expected to have fallen in May after a strong reading in April. The -0.1% forecast is not that gloomy considering the previous reading. However, a headline reading of 0.1% growth or above would reflect a growing momentum in demand and should have positive implication for the USD.
US Final GDP (q/q Q1) Forecast: -1.7%, Previous -1.0%. Q1 GDP forecasts have been negative, and the final revision is expected to be worse than the preliminary estimate of -1.0%. This would be the first quarter of contraction since Q2, 2009. This reading or worse ie. -2.0%, should pressure the USD in the short-term. However, the markets as well as the Fed have addressed Q1 slump and has excused it as a product of the harsh winter. Therefore, we expect any negative impact from the GDP data to be limited.
Thursday: BoE Financial Stability Report – Carney Speaks, US Jobless Claims, Core PCE Price Index, Personal Spending and Income
BoE Gov. Mark Carney will speak on the bank’s semi-annual Financial Stability Report. The market has been rosy about the UK economy and expects the BoE to have improved outlooks on the economy as well because the bank has hinted at a 2014 rate hike. This could be the main event risk for the sterling this week. If the report and speech confirms recent shift in rate hike expectation to early 2015, late 2014, then the GBP still has fuel to rally.
US Jobless Claims: Forecast 314K, Previous 312K. A reading close to 300 or lower will be needed for jobless claims to boost the USD during the trading session. A reading above 330K however should pressure the USD during the trading session.
US Personal Spending (m/m, May): Forecast 0.4%, Previous -0.1%.
US Personal Income (m/m, May): Forecast 0.5%, Previous 0.3%. Spending is expected to be up in May after a soft April. If durable goods reading from Wednesday is in-line with forecast, spending data should be as well.
Friday: UK Current Account, Final GDP Q1, US UM Consumer Sentiment
UK Current Account (March) Forecast: -17.1B, Previous -22.4B (all-time low). The widening CA deficit is expected to have shrunk in the March quarter from its all-time biggest deficit at -22.4B GBP.
UK Final GDP (q/q Q1): Forecast 0.8%, Previous 0..8%. The final version of Q1 GDP is not expected to differ from the previous estimates.
US Final June UM Consumer Sentiment Index: Forecast 82.2, Previous 81.2. Slight uptick is expected from the advanced estimate of June’s reading. A reading above 82 would be an improvement from May’s 81.9 reading and would also accompany other readings this week that suggests demand is increasing (CB consumer confidence, durable goods, personal spending).
(GBP/USD weekly chart, 6/21)
The weekly chart shows that GBP/USD has cracked the 2009-high of 1.7040. The next pivot is around 1.7430 up to the 1.75 handle. This upcoming week, the key technical question is how the market will react to 1.70 as support. It might consolidate around this key psychological level.
(GBP/USD 4H chart, 6/21)
Looking at the 4H chart, if the consolidation or even bearish correction pulls the RSI down, see if it can hold above 40. If it does hold and turn back above 40, we should be ready for another bullish continuation swing.
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