GBP/USD Forecast Dec. 21-25 – Brexit Sends Pound Soaring

GBP/USD posted huge gains last week, climbing 2.3%. The upcoming week has three events, including second-estimate GDP. Here is an outlook for the highlights and an updated technical analysis for GBP/USD.

The markets were glued to the Brexit talks last week. The talks continued as a Sunday deadline came and went, which boosted the pound. However, the rally fizzled on Friday and an agreement remained elusive.

UK Employment numbers were a mix. Wage growth rose to 2.7%, up strongly from 1.3% beforehand. Unemployment claims jumped 64.3 thousand, which was much higher than the forecast of 10.5 thousand. As well, the unemployment rate edged up to 4.9%, up from 4.8%. Inflation fell in November, as headline CPI dropped from 0.7% to 0.3%. Core CPI slowed to 1.1% down from 1.5%.

There were no surprises from the BoE, which made no changes to the Official Bank Rate of 0.10% or to QE. The bank was expected to remain on the sidelines while trade talks continue between the UK and the European Union. Retail sales were dismal in November, with a decline of 3.8%. This was the first decline since April.

US retail sales declined in November, pointing to weak consumer spending. The headline figure came at -1.1%, while core retail sales fell by 0.9%. US PMIs remained well into expansionary territory, with Manufacturing PMI coming in at 56.5 and Services PMI at 55.3. However, the Philly Fed Manufacturing Index slowed to 11.1, down from 26.3 beforehand.

The Federal Reserve maintained its asset purchase program at the current level of $80 billion per month. In addition, the Fed provided additional guidance which can be viewed as a dovish signal. Unemployment claims were up sharply for a second straight week, rising to 885 thousand.

GBP/USD daily graph with resistance and support lines on it. Click to enlarge:

  1. CBI Realized Sales: Monday, 11:00. The Confederation of British Industry survey showed that sales volume declined sharply in November, with a reading of -23 points. A rebound is expected for December, with a forecast of 3 points.
  2. Final GDP: Tuesday, 7:00. Second-estimate GDP for Q3 is expected to record a strong gain of 15.0%, confirming the initial result. This comes after a sharp decline in Q2 of 19.8%.
  3. Public Sector Net Borrowing: Tuesday, 7:00. The budget deficit fell to GBP 21.6 billion in November, the smallest deficit since May. The consensus estimate stands at GBP 26.3 billion.
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