GBP/USD forecast - page 36
You are missing trading opportunities:
- Free trading apps
- Over 8,000 signals for copying
- Economic news for exploring financial markets
Registration
Log in
You agree to website policy and terms of use
If you do not have an account, please register
By 20.24 GMT GBP/USD fell by 100 pips to 1,2588.
Pound to Dollar Rate Sinks as Fed Raises Interest Rates and Lifts Forecasts for Future Hikes
The GBP/USD exchange rate has fallen back as the US Federal Reserve announces an interest rate rise while forecasts in the 'dot plot' shows rates will rise faster in the future.
* Dollar Rates Today: GBP/USD = 1.2621 -0.28% | EUR/USD = 1.0580 - 0.45%
The Dollar rose on news the US Federal Reserve's Open Market Committee now envisage a faster pace of interest rate rises.
While interest rates were raised by 0.25% taking the Fed Funds corridor to 0.50-0.75% it was actually the guidance on future rises that got the Dollar moving higher.
The dot plot graph that shows where each member of the Committee sees interest rates over coming months and years betrayed the notion that rates will rise at a faster pace than envisaged in September.
Above courtesy of Danske Bank
"When it comes to rate hikes, more is always more. The revelation that 2017 could see three rises rather than two – taking rates this time next year to 1.4%, rather than the 1.1% forecast in September – lit the blue touchpaper for Dollar demand,” says David Lamb, head of dealing at FEXCO Corporate Payments.
Lamb says while it’s likely that many will take profits in the final days before Christmas – removing some of the Greenback’s froth – the Dollar is set to end 2016, and the Obama presidency, in buoyant form.
The message from the Fed will have an important bearing on GBP/USD which, while it has been rising since October, looks to have run into difficulty of late.
Note that the GBP/USD is currently suppressed by the 100 day moving average (the red line) which is blocking fresh advances:
source
British Pound to Dollar X-Rate Could be Headed to 1.1450
The US Dollar has easily been the best-performing major global currency over the course of the past 24 hours as markets race to price in the prospect of three hikes in the US next year.
Markets were caught short going into the December Fed meeting as they were expecting a repeat of September's forecasts that anticipated only two hikes would be likely over the coming 12 months.
Higher rates command higher inflows of capital into the US which in turn bids up the Dollar.
The US Dollar index - the value of the Dollar against a basket of currencies - is an eye-opening 1.5% higher driven largely by the massive slump in EUR/USD which has fallen to its lowest level since 2013.
"We can sum up the technical aspects of the Fed meeting in two words: upside skew and given that it’s been a while since we've been able to say that, it is hardly surprisingly to see the broad-based Dollar rally," says Viraj Patel at ING in London.
A thick strata of resistance barriers on the GBP/USD's charts combined with the pro-US Dollar news to prompt a notable capitulation lower to the 1.2432 level witnessed at the time of writing.
It can be no wonder then that the outlook for GBP/USD over the short-term has changed from up to down and any attempts at appreciation are likely to be capped.
According to forecasts made by J.P. Morgan back in October, the recovery from the flash crash October lows at 1.1450 has now probably run its course and the pair could start falling again.
Basing their analysis on a type of cycle theory called Elliot Wave theory J.P. Morgan predicted the exchange rate would recover in a corrective wave 4 to about the 1.2650-1.2800 zone.
After that they forecast a resumption of the downtrend in a final wave 5 lower – wave 5’s being the final waves in larger impulse moves in line with the longer-term trend.
read more
UK Economic Growth Forecasts Raised by Barclays
Barclays have revised higher their projections for the UK economy in 2017 owing to resilience seen in the post-referendum period.
Most analysts slashed growth forecasts for the UK following the vote to leave the EU in June but many have since been left scratching their heads over the UK’s defiant growth levels.
GDP read at 0.5% for the period July to September 2016 with surveys indicating that 2016 is likely to see growth come in at 2%.
Recent data on employment and retail spending are also indicative of strong momentum heading into 2017.
Consensus forecasts currently see 1.3% growth for next year, slightly lower than the Bank of England’s 1.4%.
“In our latest assessment of the post-Brexit outlook, we revise up our growth forecasts for 2017 from 0.7% to 1.0%. The main reason for this change is ongoing resilience in sentiment and data, as well as new risks that the withdrawal process could be delayed even further,” says Fabrice Montagne at Barclays in London.
Montagne says uncertainty about the timing of Brexit has likely prevented companies from acting upon the risks that an exit from the EU entails.
According to results of a survey conducted of Barclays’ corporate clients, Brexit is not universally perceived as a major disruptive event.
However, conflicting surveys have highlighted that there can be substantial differences in views on the impact of Brexit for businesses.
read more
Pound to Dollar: Forecast for This Week
The GBP/USD pair has broken down through a major trendline drawn from the October lows, whilst that is a bearish sign it is not enough yet to suggest a change in the trend.
The pair has formed a three wave a-b-c correction (see chart below) which has completed its C wave at the 50-day moving average at 1.2400.
The uptrend is still intact, however, and a break above 1.2800 would confirm an extension higher to a target at 1.2900.
Alternatively, if the C-wave lows at 1.2372 are breached, that would confirm a reversal in peaks and troughs and that the trend may have changed from up to down, leading to an extension of the move lower, targeting 1.2300.
Supporting a bearish view is the MACD, which is crossing its signal line and providing a bearish signal.
Elliot Wave Analysis Points to Possibility of Resumption of Downtrend
The recovery from the 1.1450 flash crash lows set in October has probably evolved to its full potential, according to technical strategists at J P Morgan.
Basing their analysis on a type of cycle theory called Elliot Wave theory J.P. Morgan predicted the exchange rate would recover in a corrective wave 4 to about the 1.2650-1.2800 zone.
After that they forecast a resumption of the downtrend in a final wave 5 lower – wave 5’s being the final waves in larger impulse moves in line with the longer-term trend.
This could signal a move back down towards the flash crash lows at 1.1450 is about to unfold if J P Morgan’s predictions come true.
As far as our own forecasts go we see the possibility of a rotation lower, with a break below the 1.2545 range lows as providing confirmation and leading to a sell-off down to the pivot and 50-day moving average at 1.2475.
For more losses below that we would want to see a clearance below 1.2390, with the next target at 1.2300.
Data in the week ahead for the Dollar
The week starts with Existing Home Sales in November, at 15.00 (GMT) on Wednesday, December 21, which is expected to show a 5.5m rise in sales.
Then Crude Oil Inventories are out at 15.30 on the same day.
Thursday, December 22, at 13.30 sees the release of Core Durable Goods Orders, which are expected to show a 0.2% rise in November.
The third estimate of GDP in the third quarter is out at 13.30 on Thursday, December 22, and is expected to show a 3.3% rise quarter-on-quarter.
Analysts are saying that it may be significant as a positive result will cement claims the US economy is powering ahead.
Analysts at financial information service Markit, said Janet Yellen was cautious about the outlook for the economy so a good GDP final estimate will help to relieve doubts about the trajectory for Fed policy.
“Fed chair Janet Yellen sought to downplay any shift to a more hawkish stance, declaring the economic outlook as “highly uncertain”.
“Consequently, analysts will be looking out for deviations in the final Q3 US GDP figure when published next Thursday.
“The second estimate signaled a 3.2% increase in GDP, up from the previously reported 2.9% and the strongest since Q2 2014,” said Markit.
Data in the week ahead for the Pound
The main release for the Pound is third quarter GDP, on Friday, December 23, which is forecast to show a 2.3% rise year-on-year and a 0.5% rise quarter-on-quarter in Q3.
The Pound to Dollar Pair is Forecast to Fall to 1.2300 in Week Ahead
The GBP/USD pair has broken down through a major trendline drawn from the October lows and whilst that is a bearish sign it is not enough yet to suggest a change in the trend.
The pair has formed a three wave a-b-c correction (see chart below) which has completed its C wave at the 50-day moving average at 1.2400.
If the C-wave lows at 1.2372 are breached, that would confirm a reversal in peak and trough progression higher signaling a change of trend. leading to an extension of the move lower, targeting 1.2300.
Such a move would generate a downside target at 1.2300.
The Only Way is Up For Sterling in 2017, Says One Bank Analyst
After one of the worsts years in its history the Pound could make a comeback in 2017, says Nordea’s FX Strategist Aurelija Augulyte.
“2016 was a disaster for the GBP, as the unexpected Brexit vote knocked it off most since the Lehman crisis,” she writes.
“Next year it will stage a comeback,” she concludes - with no hint of irony.
On the surface the currency appears to have little going for it: Brexit uncertainty remains unresolved, inflation is rising as we speak, wages and employment have reversed their previous uptrends and GDP growth is set to stall, according to most uber-pundits, experts, and bank governors…
Yet Augulyte remains unabashedly positive about the prospects of the island’s currency.
As far as the biggest bugbear goes – Brexit risk, she actually sees the worst as over.
In October, the markets priced in a worst case “Hard” Brexit scenario on the day after May’s “Brexit means Brexit” speech at the Conservative Party conference but Augulyte, along with other’s, sees that as merely establishing a baseline, a rock-bottom low, a line in the sand.
With talk of parliamentary involvement, the imposition of constitutional law and creative thinking in relation to transitional arrangements she sees a greater possibility of a “Soft” rather than “Hard” Brexit now.
She also sees increasing political risk in the Eurozone – and Trumpomania - as l overshadowing Brexit uncertainty in 2017, which will in all probability become ‘old news’.
“Now that the “hard” Brexit has become a market’s baseline, should we shift towards a softer form of Brexit – avoiding an exit “cliff” with a transition agreement – the markets will be relieved.
“It could happen as PM May will deliver the Brexit plan before actually triggering Article 50,” says the strategist.
But what of the Pound’s other shibboleths?
Projections of lower growth in 2017 are overdone claims Augulyte, since they do not take into account a strong housing market:
“The Bank of England (BoE) has multiple times repeated that the GBP weakness is partly due to worsening economic prospects after the Brexit referendum.
“However, so far the economy has been resilient.
“While industrial production has disappointed, the leading indicators for exports and production are positive.
“Also, the housing market collapse is likely to be averted, as some leading indicators suggest an upturn as early as in H1 2017.
“Should it materialize, instead of the current consensus forecast of 1.1% growth in GDP in 2017, we will see growth above 1.5%,” says Augulyte.
read more