GBP/USD Weekly Fundamental Analysis July 23-27, 2012, Forecast

Introduction:  While the ranges are wider (and so should stops be), the lines are rather distinctive, especially towards the borders of the long term wide range. This pair makes for good trades, with the new austerity program implemented in the UK, the GBP is moving more on Fundamentals now.

• The interest rate differential between the Bank of England (BoE) and the Federal Reserve
• High yield and attractive growth in the UK drives GBP/USD higher

Weekly Analysis and Recommendation:

The GBP/USD was able to break through the 1.57 barrier to close towards the end of the week at 1.5716 but was unable to sustain against a rising USD. The pair closed the week at 1.5621 strong then the open on the previous Monday. The IMF issued harsh warning to the UK about interest rates and harsh austerity. Although they did commend the government on their most recent plans and liquidity projects.

Unemployment numbers as well as other eco data in the UK were lackluster all week and the pound was primarily supported by the movement of the USD.

One of the highlights on next week’s European data calendar is the advance estimate of second-quarter GDP in the UK. The UK has been in recession since the end of 2011, with output falling 0.4% q/q in the fourth quarter and 0.3% in the first quarter of this year. We estimate that the economy contracted another 0.1% on a quarterly basis in the April-June period, underscoring that the risks to this forecast are weighted to the downside. Several factors held back output in the quarter, including the extra bank holiday in June for the Queen’s Diamond Jubilee, unusually poor weather, and the lagged effects from higher energy prices. The purchasing managers’ indexes deteriorated considerably in the period, while retail sales remained stagnant.

For the year as a whole, economists expect growth of no more than 0.2% (underpinned by a rebound in consumer spending during the London Olympics), down from 0.7% in 2011. In this weak economic context, and with inflation surprising on the low side for three consecutive months — the headline rate eased from 3.5% y/y in March to 2.4% in June — the Bank of England (BoE) will have a strong case to further enhance their quantitative easing (QE) program, which was most recently boosted by GBP 50 billion at the bank’s July meeting.

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 of July 16 – 20 actual v. forecast for Euro, GPB, the Franc, and USD

Historical:

Highest: 1.681 USD on Nov 17, 2009.

Average: 1.5807 USD over this period

Lowest: 1.3506 USD on Jan 23, 2009. 

Economic Highlights of the coming week that affect the Euro, GBP, CHF and the USD

Government Bond Auctions

Date  Time  Country 

Jul 23- n/a  UK

Jul 23  09:30  Germany

Jul 24  08:30  Netherlands

Jul 24  08:30  Spain 

Jul 24  15:30  Italy

Jul 24  17:00  US

Jul 25  09:30  Germany

Jul 25  15:30  Italy

Jul 25  17:00  US

Jul 26  00:30  Japan

Jul 26  09:10  Italy

Jul 27  09:10  Italy

Jul 27  17:00  US