GBP/USD Weekly Fundamental Analysis, April 25 – April 29, 2016 -Forecast

Last week, the GBP/USD closed higher at 1.4388, up 0.01912 or +1.35%, but the Forex pair remained inside its February range of 1.4667 to 1.3835, and near a key technical retracement level of this range at 1.4349 for the fourth straight week.

The British Pound started the week firm in reaction to rising oil prices and the weaker U.S. Dollar. The price action leveled off and the market became range bound after the release of UK labor data on April 20 and retail sales data on April 21.

The UK labor report showed the Average Earnings Index for the last three months was up 1.8%, below the 2.1% estimate. The Claimant Count Change came in at 6.7%, worse than the -11.9K estimate. This component of the report represents the change in the number of people claiming unemployment-related benefits during the previous month. Unemployment increased by 21,000 to 1.7 million between December and February, the first increase since the May-June period of last year, according to the Office for National Statistics. The unemployment rate remained unchanged at 5.1%.

For the most part, traders blamed “Brexit” on the increase in unemployment claims and weaker-than-expected wage growth, saying employers are not will to make major employment decisions until after the referendum on June 23.

The U.S. Federal Reserve will issue its interest rate decision and monetary policy statement on Wednesday after holding a two-day meeting.

The Fed is widely expected to leave interest rates unchanged with only 2.3 percent of traders looking for a rate hike. However, its monetary policy statement may contain language that boosts the possibility of a rate hike in June.

In its last statement, the central bank reduced the number of potential rate hikes from four to two, citing threats from global headwinds. Since these have failed to materialize, the Fed may hint at resuming its tightening cycle in June.

Before the Fed announcement, investors will get the opportunity to react to the latest UK GDP report. It is expected to show the economy grew during the first quarter by 0.4%. Year-over-Year GDP is expected to rise 2.0%.

The direction of the market this week will be determined by the language in the Fed’s monetary policy statement. A hawkish Fed will put pressure on the GBP/USD. A dovish Fed will be supportive, but gains are likely to be limited because of worries about Brexit.

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports and we provide daily updates and outlooks.

Major Economic Events for the week:

Monday, April 25, 2016

AUD        ANZAC Day Holiday

NZD        ANZAC Day Holiday

Tuesday, April 26, 2016

Wednesday, April 27, 2016

Thursday, April 28, 2016

Friday, April 29, 2016

  JPY        Showa Day Holiday

Government Bond Auctions

Date Time       Country           Auction

Apr 25 N/A UK 2.5% July 2065 Gilt (Syndicated tap)

Apr 25 11:35 Germany Eur 1.5bn Apr 2017 Bubill

Apr 26 11:10 Italy Holds BTPei auction

Apr 26 19:00 US Holds 2-year note auction

Apr 27 11:03 Sweden Holds bond auction

Apr 27 11:10 Italy Holds CTZ auction

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

Apr 27 19:00 US 2-year FRN, 5-year note auctions

Apr 28 11:10 Italy Holds 5yr/10yr bond auctions

Apr 28 19:00 US Holds 7-year note auction