The Pound to Dollar exchange rate sold off heavily at the end of last week after the release of a strong US jobs report supported the Dollar.
Now as the new week begins we note how GBP/USD has broken below a key trendline (A), which is a bearish development and does not augurs well for the pair.
Technical theory says that breaks below trendlines normally move the same distance as the move prior to the break (x) which in this case was from the 1.3266 peak down to the trendline at roughly 1.3050 – a move of above 116 points.
The continuation after the break (y) is also likely to equal 116 points, therfore, which means it will probably reach at least as far as the S1 monthly pivot at 1.2935 and the 50-day moving average (MA) at 1.2921.
There is a high probability that the pivot or the moving average will ‘break the exchange rate’s fall’ because the pivot is a support level and the MA is a dynamic support and resistance level, which means it acts as an obstacle to price.
Our overall forecast, therefore, is for a move down to the monthly pivot just above the MA at 1.2935, confirmed by a move below the current 1.3021 lows.
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Data for the Dollar
The main release for the Dollar this week it inflation data (CPI) out on Friday, August 11, at 13.30 BST.
This data release is important because it informs Federal Reserve policy, which sets interest rates, and interest rates impact on the Dollar.
Core US Inflation is expected to rise to 1.8% after showing a 1.7% rise in the two previous months.
As can be shown on the chart below Core Inflation – which removes the more volatile food and energy components – has been reading quite low compared to historical levels, and a poor inflation print on Friday could rattle market expectations and weigh on the Dollar.
Data for the Pound
A rather thin week for UK data kicks off on Monday morning with Halifax House prices at 8.30 BST and the consensus estimate arguing for a 2.0% rise year-on-year and a 0.2% rise month-on-month.
Given House Prices fell a hefty -1.0% in June, analysts will be checking whether that was just a blip on the cardiogram rather than a deeper decline as a consequence of the economic slowdown.
Then at 00.01 on Tuesday, the BST, British Retail Consortium’s Retail Sales monitor will be released.
This is a sentiment survey asking people in the Retail sector how things are going.
Analysts may being paying more attention to it given the rising rate of inflation and the squeeze in real earnings this has created.
On Thursday, August 10, the RICS House Price balance is to be released, with a probable 8.0% rise expected.
At 9.30 on Thursday we have Industrial and Manufacturing Production for June.
The Trade balance for June is out at the same time, and is expected to show the deficit narrowing to 11.00bn from 11.86bn previously.