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FX Week Ahead - Top 5 Events: July UK Inflation Report & GBP/USD Rate Forecast

FX Week Ahead - Top 5 Events: July UK Inflation Report & GBP/USD Rate Forecast

2019-08-10 19:20:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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July UK Inflation Report Overview:

  • The July UK inflation report (consumer price index) is due out on Wednesday, August 14 at 08:30 GMT, but the data will continue to be overshadowed by Brexit.
  • GBPUSD continues to get hit hard since Boris Johnson took office as UK prime minster, not exactly a surprise given his lack of concern – or rather, desire – for a no deal, hard Brexit.
  • Retail traders have remained net-long since May 6 when GBPUSD traded near 1.2993; price has moved 7.5% lower since then.

Join me on Mondays at 7:30 EDT/11:30 GMT for the FX Week Ahead webinar, where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.

08/14 WEDNESDAY | 08:30 GMT | GBP CONSUMER PRICE INDEX (JUL)

For any other currency, a data release with a ‘high’ rating would likely stir meaningful volatility. But for the British Pound haunted by the prospect of a no deal, “hard Brexit,”economic data releases have been neutered.It remains the case that if the Brexit negotiations are in the works, the Bank of England won’t act on interest rates, and therefore data related to policy decisions have been downgraded in terms of expected impact on markets. Considering this reality, any Brexit-related developments, especially now that rumors of a snap general election are afoot, would quickly supersede any reaction to the July UK inflation report.

Pairs to Watch: EURGBP, GBPJPY, GBPUSD

GBPUSD Technical Analysis: Weekly Timeframe (June 2016 to August 2019) (Chart 1)

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A look at the weekly timeframe highlights the destruction that Brexit has wrought upon the British Pound. Since Boris Johnson became UK prime minister, the GBPUSD has accumulated losses each week, and the latest turn lower saw GBPUSD breakdown through the March 2017 low at 1.2109. Now, the January 2017 low is in focus at 1.1986, with the post-Brexit vote in October 2016 coming into focus shortly thereafter at 1.1905.

GBPUSD Technical Analysis: Daily Timeframe (April 2018 to August 2019) (Chart 2)

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In our last GBPUSD technical forecast, we suggested that “as is often the case with symmetrical triangle breakdowns, there is a likelihood of a return to the base of the triangle; in this instance, with a bearish break occurring, we’ll be looking for GBPUSD to return to the downside base of the symmetrical triangle, set in October 2016, at 1.1905 over the coming weeks.”

Progress has been with respect to this effort, with GBPUSD falling to a fresh yearly low by Friday, August 9, closing the week at 1.2023. With bearish momentum firm on not only the weekly timeframe but the daily as well – price remains below the daily 8-, 13-, and 21-EMA envelope while both daily MACD and Slow Stochastics trend lower in bearish territory – GBPUSD remains on course for a return to the October 2016 low at 1.1905.

IG Client Sentiment Index: GBPUSD Rate Forecast (August 9, 2019) (Chart 3)

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GBPUSD: Retail trader data shows 80.3% of traders are net-long with the ratio of traders long to short at 4.08 to 1. In fact, traders have remained net-long since May 6 when GBPUSD traded near 1.2993; price has moved 7.5% lower since then. The percentage of traders net-long is now its highest since Jul 31 when GBPUSD traded near 1.21589. The number of traders net-long is 0.6% lower than yesterday and 2.6% lower from last week, while the number of traders net-short is 15.2% lower than yesterday and 8.7% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBPUSD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBPUSD-bearish contrarian trading bias.

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Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher, email him at cvecchio@dailyfx.com

Follow him in the DailyFX Real Time News feed and Twitter at @CVecchioFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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