British Pound (GBP) Sterling Forecasts, Analysis and Daily Coverage on Monday
- Written by: Gary Howes
-
By Rob Samson 
Pound Sterling vs EUR: Pound Sterling vs USD: Pound Sterling vs AUD: Pound Sterling vs CAD: Pound Sterling vs NZD: Pound Sterling vs ZAR:
The pound sterling (GBP) was sold on Friday afternoon after a good morning's trade. Monday sees a soft start however general consensus for the time being suggest the UK currency will likely remain supported in a week of little data or event risk.
Today's Live British Pound (GBP) Rates.
1.166
1.2509
1.9175
1.7085
2.0991
23.8134
15:51: GBP/USD at 2.0?
According to Afex the breaching of the level at 1.7 would be of utmost important to the longer-term forecast for GBP/USD:
"The market reacted negatively to its realisation of 1.6750 primary objectives last week and though Sterling values can still re-base with a view to achieving secondary targets at 1.7000 this latter level is likely to present strong (trend limiting) resistance at least from a short term stand point. If an upside breach is engineered here the long term outlook would improve exponentially and indeed prices will then be argued to have re-entered a higher range which extends toward 2.0000.
"NB: at present 1.4000-1.7000 effectively defines the lower holding pattern. For the moment 1.6500 is thus still acting as a pivot point and may well come back into focus again first/next."
"The market reacted negatively to its realisation of 1.6750 primary objectives last week and though Sterling values can still re-base with a view to achieving secondary targets at 1.7000 this latter level is likely to present strong (trend limiting) resistance at least from a short term stand point. If an upside breach is engineered here the long term outlook would improve exponentially and indeed prices will then be argued to have re-entered a higher range which extends toward 2.0000.
"NB: at present 1.4000-1.7000 effectively defines the lower holding pattern. For the moment 1.6500 is thus still acting as a pivot point and may well come back into focus again first/next."
15:46: Bank of England keeps GBP rally in check
According to Jean-Pierre Dore at Western Union sterling is being held back by the observation that future Bank of England policy remains difficult to call:
"GBP/USD is still positioned for further gains if the market can hold above the 1.6600 level; however, comments over the weekend from Governor Carney reiterated that despite the strength of the U.K. recovery thus far, the Bank is still willing to support the economy if so required."
"GBP/USD is still positioned for further gains if the market can hold above the 1.6600 level; however, comments over the weekend from Governor Carney reiterated that despite the strength of the U.K. recovery thus far, the Bank is still willing to support the economy if so required."
15:31: Order-driven and technical trading seen
The following assessment of today's trade from KBC Markets:
"With no important eco data on the calendar on the calendar in the UK, trading in the major sterling cross rates was mostly order driven and technical in nature.
"The news flow from Europe or the US was only of second tier importance. Sterling traded nervous around the open of the European markets. However, the opening losses were reversed very soon. Cable returned to the mid 1.66 area; EUR/GBP to the mid 0.8250 area. The better than expected German IFO and the upward revision of the EMU January CPI are hardly visible on the EUR/GBP charts. Later in the session, the dollar found a better bid overall. EUR/USD and cable lost some ground, with cable lightly outperforming."
"With no important eco data on the calendar on the calendar in the UK, trading in the major sterling cross rates was mostly order driven and technical in nature.
"The news flow from Europe or the US was only of second tier importance. Sterling traded nervous around the open of the European markets. However, the opening losses were reversed very soon. Cable returned to the mid 1.66 area; EUR/GBP to the mid 0.8250 area. The better than expected German IFO and the upward revision of the EMU January CPI are hardly visible on the EUR/GBP charts. Later in the session, the dollar found a better bid overall. EUR/USD and cable lost some ground, with cable lightly outperforming."
14:41: EUR/GBP to struggle within the 0.82-0.8250 band
"Cable shrugged off sluggish data releases in the UK last week and, given the light daily agenda, more stabilisation above 1.67 is likely today, while EUR-GBP is also expected to struggle within the 0.82-0.8250 band." - UniCredit Bank.
14:15: Markets mis-price sterling
More from Barclays and their valuation of fair GBP/USD at 1.64:
"We view this level as consistent with the relative outlooks for monetary policy. Our interpretation of the MPC’s February QIR was ostensibly dovish, given the MPC’s explicit signal to read through the improvements in the labour market and instead focus on the degree of slack in the economy.
"The subsequent rally in GBP following the release was likely more generally a function of a perceived lack of credibility associated with the policy framework changes. We have also argued that inflation remains crucial to the outlook for GBP. On that note, our economists have revised their CPI forecast profile lower and now expect it to undershoot the BoE’s. This may be a more effective tool than the MPC’s current guidance in pushing back near-term rate expectations."
"We view this level as consistent with the relative outlooks for monetary policy. Our interpretation of the MPC’s February QIR was ostensibly dovish, given the MPC’s explicit signal to read through the improvements in the labour market and instead focus on the degree of slack in the economy.
"The subsequent rally in GBP following the release was likely more generally a function of a perceived lack of credibility associated with the policy framework changes. We have also argued that inflation remains crucial to the outlook for GBP. On that note, our economists have revised their CPI forecast profile lower and now expect it to undershoot the BoE’s. This may be a more effective tool than the MPC’s current guidance in pushing back near-term rate expectations."
14:14: Barclays warn GBP will correct lower to fair value
According to Barclays analyst Chris Walker the GBP/USD is currently above fair value, it is their belief that the rate will decline in coming months:
"Given the risks of a correction lower in GBP/USD over the coming weeks as anticipated flows are matched with GBP supply (in line with previous M&A deals) and relatively stretched market pricing, we see good risk-reward in positioning for tactical GBP/USD downside via options.
"While we would not want to sell GBP/USD spot, given the upcoming potential inflows, we like the optionality of owning GBP downside over six weeks, by which time we expect GBP/USD to have corrected towards its near-term ‘fair’ value (which we forecast at 1.6400)."
"Given the risks of a correction lower in GBP/USD over the coming weeks as anticipated flows are matched with GBP supply (in line with previous M&A deals) and relatively stretched market pricing, we see good risk-reward in positioning for tactical GBP/USD downside via options.
"While we would not want to sell GBP/USD spot, given the upcoming potential inflows, we like the optionality of owning GBP downside over six weeks, by which time we expect GBP/USD to have corrected towards its near-term ‘fair’ value (which we forecast at 1.6400)."
12:44: Sell EUR on upticks vs sterling
KBC Markets say they believe in selling the EUR/GBP on any upticks on what is to be a slow week for UK data:
"The rally of sterling against the euro and the dollar halted, but the damage remained limited. Later this week the calendar in the UK is moderately interesting with the CBI distributive trades (Tuesday), the details of the Q4 GDP (Wednesday) and consumer confidence (Friday)."
"We doubt that the UK data will be able to trigger a break in sterling out of the recent ST consolidation pattern. Any more substantial move will probably be initiated from outside the UK. In this respect, EUR/GBP traders will keep a close eye on the ECB comments and on the EMU February CPI, scheduled for release on Friday. We maintain a sell-on-upticks approach for EUR/GBP. We look to sell in case of return action towards the 0.8350 resistance."
"The rally of sterling against the euro and the dollar halted, but the damage remained limited. Later this week the calendar in the UK is moderately interesting with the CBI distributive trades (Tuesday), the details of the Q4 GDP (Wednesday) and consumer confidence (Friday)."
"We doubt that the UK data will be able to trigger a break in sterling out of the recent ST consolidation pattern. Any more substantial move will probably be initiated from outside the UK. In this respect, EUR/GBP traders will keep a close eye on the ECB comments and on the EMU February CPI, scheduled for release on Friday. We maintain a sell-on-upticks approach for EUR/GBP. We look to sell in case of return action towards the 0.8350 resistance."
12:17: Technical structure favours a bullish bias
Luc Luyet at MIG Bank gives his assessment of GBP/USD today:
"GBP/USD has thus far failed to show any significant pick-up in buying interest. A break of the support at 1.6600 would invalidate the positive outlook linked to the bullish breakout at 1.6668. Another support lies at 1.6426. An hourly resistance stands at 1.6742.
"In the longer term, the technical structure favours a bullish bias as long as the support at 1.6220 (17/12/2013 low) holds. The decisive break of the resistance at 1.6668 opens the way for a move towards the major resistance at 1.7043 (05/08/2009 high). However, a sustainable move above that level is unlikely in the next few weeks."
"GBP/USD has thus far failed to show any significant pick-up in buying interest. A break of the support at 1.6600 would invalidate the positive outlook linked to the bullish breakout at 1.6668. Another support lies at 1.6426. An hourly resistance stands at 1.6742.
"In the longer term, the technical structure favours a bullish bias as long as the support at 1.6220 (17/12/2013 low) holds. The decisive break of the resistance at 1.6668 opens the way for a move towards the major resistance at 1.7043 (05/08/2009 high). However, a sustainable move above that level is unlikely in the next few weeks."
11:37: EUR/GBP offers bears good selling opportunities
"EURGBP spiked to 0.82865 (50-dma) on supportive IFO. Trend and momentum indicators turn upwards, the MACD (12- 26 day) is now positive calling for more gains in the short-run as long as the 21-dma (currently at 0.82525) holds. Good selling opportunities for those betting on the short side of the play." - Ipek Ozkardeskaya, Swissquote Research.
11:25: For GBP/USD 1.66 is key
"We don't expect the Bank of England to be overly concerned about recent data releases because the recovery's foundation remains solid, the 1.66 support level in GBP/USD is key. If M&A flows keep the currency pair above 1.66, a slow climb upwards is possible. However if the support level gives way, we could see a steeper slide down to 1.64." - Kathy Lien at BK Asset Management.
10:40: GBP/USD may test higher to 1.7 say Citi
Analysts at Citigroup have updated clients on where they see the headline Cable pair heading:
"Citi analysts expect the U.K. economy to grow 3.3% in 2014 due to strong property market, consumption and investment.
"The BOE may hike rates in Q4 2014. Interest rate differential may underpin the GBP.
"However, there are signs of deterioration in the U.K. current account recently and Scottish independence referendum will be held in September, which may restrain the pound in the medium and long term.
"GBP/USD may test higher to 1.6876- 1.7042 (13.10-13.22), with support at 1.6526 (12.82)."
"Citi analysts expect the U.K. economy to grow 3.3% in 2014 due to strong property market, consumption and investment.
"The BOE may hike rates in Q4 2014. Interest rate differential may underpin the GBP.
"However, there are signs of deterioration in the U.K. current account recently and Scottish independence referendum will be held in September, which may restrain the pound in the medium and long term.
"GBP/USD may test higher to 1.6876- 1.7042 (13.10-13.22), with support at 1.6526 (12.82)."
10:00: Speculators warm to GBP further
The latest IMM Commitment of Traders report shows speculative positions in the British pound have extended. Traders have also showed a preference for the Euro where longs were also added to. Exposure to the USD was pared back.
08:53: Three bearish signals form on GBP/EUR
The near-term outlook for the GBP/EUR pairing has deteriorated sharply. At Friday's closing level we note that no less than three bearish signals formed suggesting the outlook at the start of the new week is biased to the downside.
GBP/EUR closed at 1.2095 and we saw the following negative indicators form: Commodity Channel Index (Weekly), Short-Term Bearish MACD, Price Crosses Moving Average (21-day).
GBP/EUR closed at 1.2095 and we saw the following negative indicators form: Commodity Channel Index (Weekly), Short-Term Bearish MACD, Price Crosses Moving Average (21-day).
08:21: We still favour GBP upside say Lloyds
"UK retail sales came in weaker than expected, however this mostly offset the sharp rise seen in December. The series is typically quite volatile on a month on month basis and while the weak print prompted an initial GBP sell-off this was quickly reversed. This week will be relatively quiet data wise compared to last week. Q4 GDP revision will likely provide the highlight, though no change is expected. We still favour GBP/USD to the upside. We expect potential GBP demand related to the Vodafone-Verizon deal and the continued softness in US data should see GBP/USD remain well supported." - Lloyds Bank Research.
08:19: It's either way for GBP/USD
Concerning the outlook for Cable, Lewis Barber at Forex Trading University says: "Price is currently sitting right above key support at 1.6600 and we will be watching out for a bullish price action false-break early this week. If price closes below 1.6600 early this week we could see a move back to 1.6300 - either scenario seems equally likely right now."
08:16: Stick with the trend and buy GBP
Sean Lee on how to approach the currency markets this week:
"The market’s aren’t getting any easier to read in my opinion and in cases like this it’s probably safest to stick with the prevailing trends.
"The latest IMM data tells us what we all know already, the market is keen to buy GBP and sell CAD, AUD and JPY. No point in fighting these trends, wait for retracements and jump on board. EUR and USD sentiment remains neutral.
"Can’t see any glaring trade opportunities at the moment so settle in and be patient. Have a great week."
"The market’s aren’t getting any easier to read in my opinion and in cases like this it’s probably safest to stick with the prevailing trends.
"The latest IMM data tells us what we all know already, the market is keen to buy GBP and sell CAD, AUD and JPY. No point in fighting these trends, wait for retracements and jump on board. EUR and USD sentiment remains neutral.
"Can’t see any glaring trade opportunities at the moment so settle in and be patient. Have a great week."
08:00: British Pound (GBP) to trade sideways this week say UniCredit
A summary of what we can expect this week, courtesy of UniCredit:
"The very weak preliminary manufacturing PMI reading for China will likely keep financial markets in a restrained mode regarding risk-taking, at least until the release of the next US ISM index.
"Hence, the JPY and the CHF are expected to be the major beneficiaries on FX markets in the very short term, while the AUD and the NZD should prove to be the main casualties. We expect the EUR to be on the strong side most of the week, the GBP to trade sideways and the USD to remain relatively weak, but not much weaker, as markets will most likely avoid taking any strong directional views ahead of the important releases of US ISM and the US employment report."
"The very weak preliminary manufacturing PMI reading for China will likely keep financial markets in a restrained mode regarding risk-taking, at least until the release of the next US ISM index.
"Hence, the JPY and the CHF are expected to be the major beneficiaries on FX markets in the very short term, while the AUD and the NZD should prove to be the main casualties. We expect the EUR to be on the strong side most of the week, the GBP to trade sideways and the USD to remain relatively weak, but not much weaker, as markets will most likely avoid taking any strong directional views ahead of the important releases of US ISM and the US employment report."
