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GBP/USD Weekly Forecast: GBP to Follow the Strong Seasonal Playbook?

GBP/USD Weekly Forecast: GBP to Follow the Strong Seasonal Playbook?

Justin McQueen, Analyst

GBP/USD FUNDAMENTAL HIGHLIGHTS:

  • EUR/GBP Range Break Nearing
  • GBP/USD Seasonality Signals Strong April Ahead
  • GBP/JPY Upside Risks Amid Month/Quarter-End Flows

A relatively constructive close to the week for the Pound with cable trading at within close vicinity to the 1.38 handle. The slew of UK data throughout the week has had a somewhat limited impact on price action. Softer CPI is likely to reverse higher in the months ahead, which has been well-documented, strong UK flash PMIs for March was not entirely surprising given the UK’s roadmap to normalisation being laid out, while retail sales are also expected to bounce strongly as non-essential retail re-opens. That said, for much of this and for the first half of next week the focus has and will be on month/quarter end flows for G10 FX.

GBP/USD Bearish
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -3% -6% -4%
Weekly 36% -17% 9%
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EUR/GBP Range Break Nearing

The modest bid in cable has been in part a by-product of some cross-related EUR/GBP selling with the 0.8540-0.8640 remaining well respected. In turn, with the cross yet again rejecting the range top, to trade at range lows, focus will be on whether we can finally see a clean break next week. The fundamentals continue to signal that EUR/GBP remains tilted to the downside with Europe heading towards a third Covid wave with most of the region extending restrictive measures, while the UK have set the roadmap for normalisation.

EUR/GBP Chart: Daily Time Frame

GBP/USD Weekly Forecast: GBP to Follow the Strong Seasonal Playbook?

Source: Refinitiv

Although, I must admit until yesterday, I had been cautious on expecting further downside in recent weeks, given that the cross had been in oversold territory, while the RSI had also posted a bullish divergence. However, with the RSI failing at 50 and the now out of oversold conditions, there is more room to expect near term direction, alongside this we are also heading towards a seasonally strong month for GBP as seen below.

GBP/USD Seasonality Signals Strong April Ahead

GBP/USD Weekly Forecast: GBP to Follow the Strong Seasonal Playbook?

GBP/JPY Upside Risks Amid Month/Quarter-End Flows

Another GBP cross that tends to peak my interest around this time of the month is GBP/JPY, which typically performs pretty well on the final day of the trading month (particularly ahead of the 4pm London fix) as the table below shows. With that in mind, Japanese FY end may also provide a tailwind to exacerbate the move higher, which has been notable as we close out the week.

GBP/USD Weekly Forecast: GBP to Follow the Strong Seasonal Playbook?

For more on month-end rebalancing, I make a note on it in “The Need to Know Guide on Trading the Pound (GBP)

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

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