British Pound (GBP) Forecast: Brexit Protocols and Weak Growth, a Prelude to Next Week’s UK Data

[MongiIG]

GBP/USD ANALYSIS

• GBP/USD looks to end the week off on a positive note.
• Key economic data scheduled next week – CPI, Jobs.
• IG client sentiment – Bullish.

 

CABLE FUNDAMENTAL BACKDROP

Cable hit fresh lows yesterday marking an almost 10% depreciation for the pound against the U.S. dollar year-to-date. Poor UK GDP data added to the downward trend as we look forward to next weeks inflation and jobs releases (see economic calendar below). The weaker growth prints add pressure on the Bank of England (BoE) to possibly hold off on its prior aggressive outlook leaving the pound susceptible to further downside.

GBP/USD ECONOMIC CALENDAR

Source: DailyFX Economic Calendar

The UK’s Brexit transgressions with regard to Northern Ireland are adding to the already fading growth prospects for the UK and will weigh negatively on GBP/USD. This being said, although the dollar remains bid, I believe we may be closing in on a corrective move before continuing the GBP/USD bear trend.

GBP/USD TECHNICAL ANALYSIS

GBP/USD DAILY CHART

Chart prepared by Warren Venketas, IG

Price action on the daily GBP/USD chart shows the recent break below the June 2020 swing low at 1.2252 now finding support around the 1.2000 psychological support zone. The RSI (yellow) is indicative of bullish divergence whereby price movement (lower lows) opposes that of the RSI (higher lows). Traditionally bullish divergence suggests impending upside however, timing the reversal can be difficult. Nonetheless, as mentioned above, I do think we could be heading for a pullback towards resistance (1.2252) and beyond before traders look to ‘buy the dollar dip’ and continue with the prior trend.

Key resistance levels:

• 1.2252

Key support levels:

• 1.2080
• 1.2000

BULLISH IG CLIENT SENTIMENT

IG Client Sentiment Data (IGCS) shows retail traders are currently LONG on GBP/USD, with 82% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment however, due to recent changes in long and short positioning we arrive an upside bias.

 

May 13, 2022 | DailyFX
Warren Venketas, Analyst