GBP/USD Stuck in Range; US Building Permits Rise
The charts are showing the GBP/USD pair in a range. The US dollar may have gained a marginal regenerative pulse after Building Permits surprised to the upside on Tuesday but the data release did not lead to any major moves.
A higher than expected rise in US Building Permits in June may have provided the US dollar with some gentle support on Tuesday although despite an expectation beating gain, which continued to show the US housing market in rude health, the dollar did not capitalise as much as may have been expected from a top tier release.
Building Permits rose to 1.153m, easily beating expectations of 1136k and a previous result of 1150k.
EconomicCalendar.com's Sam Bourgi commenting on the figures and the general outlook for the property market said:
"On Monday, the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) suggested housing activity had steadied in July amid slightly lower sales expectations and buyer traffic. NAHB said that the fundamentals were still in place for a continued recovery in the nation’s housing sector. Solid job creation and affordable mortgage rates will likely offset any potential headwinds the market faces over the near term."
Chart Analysis
The pound to dollar rate is showing potential for more gains as sterling continues clawing back ground post-brexit.
However, this extended rangebound consolidation is starting to bringing into doubt the previous bullish bias.
The pair has formed what could be a small inverse head and shoulders (H&S) reversal pattern at the lows, however, the right shoulder is becoming a little elongated for comfort and as a consequence the outlook is more balanced and the pair could break either higher or lower.
A break above the neckline of the inverse H&S at 1.3500 would provide a confirmatory signal of a move up towards the next target to the upside at 1.3800.
Again, MACD crossing its signal line is another signal the pair might be extending higher.
Commerzbank's technician, Karen Jones is also bullish:
“This correction higher looks set to extend further than we originally thought and we should allow for a rally to 1.3534 and potentially 1.3638, the 0.382% retracement of the recent sell-off.”
We are still, though less enthusiatically bullish too.
US Data in coming week
US data releases in the week ahead will be viewed in a large part in relation to their impact on whether they will increase or diminish the likelihood of an early interest rate hike from the Federal Reserve (Fed).
Clearly an earlier rise will support the US Dollar as currencies with higher yields tend to generate higher demand from international investors seeking returns than currencies with lower rates.
Given many analysts think the Bank of England will cut interest rates in August, particularly strong US data suggesting the Fed might raise rates before the winter would lead to some strong downside volatility in GBP/USD due to the sharply contrasting interest rate differential.
Latest Pound / US Dollar Exchange Rates
  | Live: 1.3335▲ + 0.07%12 Month Best:1.3789 |
*Your Bank's Retail Rate
| 1.2882 - 1.2935 |
**Independent Specialist | 1.3148 - 1.3202 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
On Tuesday Building Permits are expected to show a rise to 1.150m in July will be released, and is forecast to come out at 96.0 from 98.0 previously.
New Home Sales in June on the same day are expected to show a rise of 560k in June.
Core Durable Goods Orders are released on Thursday, and Pending Home Sales.
Philadelphia Fed Manufacturing in July is out on Thursday and is expected to register a 5 from 4.7 previously.
Existing Home Sales in June, also on Thursday, is expected to show a slide to 5.47m.
July PMI's in limelight as Investors focus on port-Brexit data
Data for the UK includes June CPI out on Monday, which is forecast to 0.4% yoy from 0.3% previously.
Employment data is also out for May on Wednesday, however, both these releases might not impact on sterling much given they are in the main for periods of time before Brexit, and the market is more interested in monitoring how the economy is coping post-Brexit now.
It might therefore be more interested in data out on Friday which includes July Services, Manufacturing and Construction PMI.
These will provide one of the first snapshots of how the economy is managing after Brexit, and will be a highly influential factor in shaping market sentiment.
