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Forex Analysis: British Pound Forecast Remains Bearish Ahead of Key Week

By , Quantitative Strategist
10 November 2012 03:12 GMT

British_Pound_Forecast_Remains_Bearish_Ahead_of_Key_Week_body_gbp.png, Forex Analysis: British Pound Forecast Remains Bearish Ahead of Key Week

Fundamental Forecast for British Pound: Bearish

It was a tough week for the previously resilient British Pound, as disappointing UK economic data and a turn lower in the US S&P 500 led the GBP to fresh two-month lows against the safe-haven US Dollar (ticker: USDOLLAR) and at risk for further declines.

Recent disappointments in UK economic fundamentals set the stage for similarly lackluster UK labor reports and Retail Sales data in the days ahead, but a Bank of England Inflation Report may have the most significant implications for the British Pound. The British central bank left monetary policy unchanged through its recent meeting but did not produce a statement following their decision.

As such, we’ll keep a close eye on their own forecasts for growth and inflation and whether they suggest further easing is likely amidst lackluster economic performance. Relatively modest inflation readings could further support the case for Bank of England asset purchases and put focus on early-week Consumer Price Index inflation results.

Recent British Pound price action suggests that it may have set a significant top versus the US Dollar and remains poised to trade toward multi-year range lows. Failure at the $1.63 mark left the range intact, and a series of lower highs and lower lows since the September top lends further weight to the case for GBPUSD weakness.

Our technical forecast for the British Pound predicts that any near-term recovery will likely be capped at the $1.6040 mark, and any short-term rallies could provide selling opportunities as the pair sticks to its two-month downtrend. It would otherwise take a material shift in fundamental forecasts—possible though unlikely—to shift our overall GBP-bearish trading bias. - DR

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10 November 2012 03:12 GMT