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GBP/USD Fundamental Analysis – week of July 25, 2016 -Forecast

By:
Barry Norman

The GBP/USD weakened after data showed a significant drop in the economy adding more stress to the Brexit vote. New Prime Minister May said that she would

GBP/USD Fundamental Analysis – week of July 25, 2016 -Forecast

The GBP/USD weakened after data showed a significant drop in the economy adding more stress to the Brexit vote. New Prime Minister May said that she would not be holding talks with the EU until next year. The pound closed at 1.311 down 09.63% for the week and down over 11% for the month.  The pound remained well bid going into the release of the UK PMI’s. Stronger than expected PMI’s for the Eurozone failed to really support the EUR/GBP pair. In contrast to the EMU PMI’s, the UK’s vote to leave the EU had a big impact on UK business sentiment. The UK composite PMI showed a record 4.7 points drop, pulling the index well into contraction territory. The services PMI was hit the but also the manufacturing PMI dropped below the benchmark level and the details were awful too.

Sterling weakened further during the European session as the poor data fueled speculation on further BoE stimulus. Cable showed a similar reaction, trading around 1.3280 before the UK PMI’s were published to hover around 1.31 currently. The prospect of further Bank of England easing at the early August meeting will probably keep sterling under pressure. Last week’s highs of sterling against the euro and against the dollar are strong resistances.

The dramatic drop in UK business confidence is worrying and suggests the UK economy might contract in the third quarter. The survey results won’t pass unnoticed within the Bank of England and are another reason to ease policy next month. Nevertheless, the true impact of the Brexit is still uncertain and will probably be only visible in the coming months and quarters.

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Major Economic Events for the week:

Date Currency Name Volatility Previous Consensus
7/27/2016 AUD Consumer Price Index (YoY) 3 1.3 1.1
7/27/2016 USD Durable Goods Orders 3 -2.2 -1.1
7/27/2016 USD Fed’s Monetary Policy Statement 3
7/27/2016 USD Fed Interest Rate Decision 3 0.5
7/28/2016 JPY BoJ Press Conference 3
7/29/2016 JPY BoJ Interest Rate Decision 3 -0.1 -0.2
7/29/2016 JPY BoJ Monetary Policy Statement 3
7/29/2016 EUR Gross Domestic Product (YoY) 3 1.7 1.6
7/29/2016 EUR Gross Domestic Product (QoQ) 3 0.6 0.3
7/29/2016 EUR Consumer Price Index (YoY) 3 0.1
7/29/2016 EUR Consumer Price Index – Core 3 0.9

Upcoming Government Bond Auctions

Date Time Country 

Jul 25 11:30 Germany Eur 1.5bn Jul 2017 Bubill

Jul 25 17:20 Italy Announces details of bond auction

Jul 26 11:10 Italy Holds zero-coupon/BTPei auction

Jul 27 11:30 Germany Eur 1bn 2.5% Aug 2046 Bund

Jul 28 11:10 Italy Holds bond auction

 

 

 

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