GBP/USD Forecast: After losing uptrend support, only a cross-party accord can lift it

  • GBP/USD was slightly on the back foot amid mixed data, no Brexit progress.
  • The focus fully shifts to Brexit as parliament returns and the calendar is light.
  • The technical picture is balanced for the pair.

This was the week: Mixed data and a bit of Brexit

After Brexit was pushed back to October 31st, and lawmakers went on a break, UK data had its say. The jobs report was upbeat: the unemployment rate remained at a low of 3.9% and wage growth held its high ground at 3.5%. 

Sterling suffered from the inflation report. Headline Consumer Price Index stuck to 1.9%. The gap between salaries and inflation means households are better off, but the pound has fewer reasons to rise. 

Retail sales surprised to the upside with a leap of 1.1% in March, contrary to expectations for a drop. Moreover, the advance came on top of an upward revision to the figures for March. Sales excluding fuel also came ahead of projections. 

All in all, UK data was slightly positive, but that was not enough. 

Brexit was never far away from the news. Talks between the ruling Conservative Party and the opposition Labour Party continued but did not yield any results. Opposition leader Jeremy Corbyn said that there is no agreement on a customs union. His words weighed on Sterling. 

In the US, data was mixed: industrial output missed with -0.1% while the trade balance deficit narrowed. Fed officials also had mixed messages, but basically stuck to remaining patient on raising interest rates

Chinese GDP slightly surprised to the upside and cheered markets, but the effect was not sustained. Once again, the US and China reported progress in talks and further top-level meetings between US Trade Representative Robert Lighthizer and China's Vice Premier Liu He. Markets are somewhat skeptical and await an announcement of a summit between Presidents Donald Trump and Xi Jinping. 

UK events: Light calendar, but lawmakers are back

The UK calendar is light. Public Sector Net Borrowing for March will likely show moderate lending by the government. The BBA Mortgage Approvals dropped in February and could stabilize now.

The light calendar and the return of parliament on Tuesday mean that Brexit is back to the forefront. Negotiations between the two main parties may accelerate with everybody back in the capital. Also, the Conservative Party is facing losses in the European Parliament elections due in late May. Some speculate it will lead them to close a deal with Labour on Brexit, allowing a swift exit and avoiding going to the polls. 

Plots to oust PM Theresa May may also reignite from both pro-Brexit and pro-Remain members. 

Here are the events lined up in the UK on the forex calendar:

UK macro economic events April 22 26 2019

US events: Week culminates with US GDP

Existing Home Sales are due while on Easter Monday, and they are expected to show moderation after a strong bounce beforehand. The same goes for New Home Sales on Tuesday. 

Durable goods orders stand out on Thursday and serve as a warm-up for the GDP data on the following day, as the investment data for March feeds into Q1 GDP. Orders dropped in February, but more significantly on the headline than in core numbers. 

And the best is kept for last. The US economy probably slowed down in Q1 2019, extending the slowdown seen in Q4 2018 with 2.2%. The deceleration is due to weaker demand from China, the government shutdown, seasonality, and additional factors. The data tends to surprise and have a considerable impact on currencies. 

Here are the scheduled events in the US:

US macro economic events April 22 26 2019

GBP/USD Technical Analysis - Losing uptrend support

GBP/USD lost the uptrend support line that dates back to early December. It is part of a broad trading channel that accompanied cable. The inability to move higher took its tool. The pair also failed to recapture the 50-day Simple Moving Average, and it is nearing the 200-day SMA. Momentum is negative, and the Relative Strength Index is leaning lower. 

All in all, the bias is bearish.

The round number of 1.3000 is a critical battleground. The next line to watch is 1.2960 which was the low point in March and is close to the 200 SMA. 1.2895 was the gap line in February. Further down, 1.2830 was a support line earlier that month, and 1.2775 was the low point back then.

To recapture the former uptrend support line, GBP/USD would need to cross 1.3060. The next line to watch is 1.3130 which held cable down in mid-April. The high point in April is 1.3200, also a round number. 1.3230 was a high point in January and where the uptrend resistance line began.

GBP USD technical daily chart April 22 26

GBP/USD Sentiment

After being under the cosh, the pound has room to recover. The economy is doing OK, and Brexit remains far away. Barring a total breakdown of the talks between the parties, cable has room to float to the upside. 

The FXStreet Poll provides additional insights. It shows that investors are not yet convinced on pushing GBP/USD below the 1.3000 level, as despite bears are a majority in the 1-week view, with the pair seen around 1.2985, sentiment turns bearish in the longer perspectives, with bulls up to 60%  and 59% in the 1 and 3 month views.

However, the Overview chart shows that, in the 1-month perspective, the pair is seen stuck within familiar levels in the 1.30/1.32 price zone. In the longer one, is all about Brexit, with the range of possible targets going from 1.25 to 1.38, reflecting the fears and hopes over Brexit's outcome.

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