GBP/USD Weekly Fundamental Analysis October 1-5, 2012 Forecast

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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 ended the week at 1.6167 off of an earlier high of 1.6272. Sterling had a good week, finishing in the middle pack among the majors In a mostly ‘risk-off’ past five days, the Sterling fell behind the Japanese Yen and the US Dollar, and the increasingly resilient New Zealand Dollar. Once again, the Sterling shined against the Euro, for which it gained just over half of one percent against. For the most part, price action was consolidation in nature, but Friday stoked a big down day following some harsh words from Fitch Ratings. It is due to these comments alongside a mixed data outlook that leaves us reducing our British Pound outlook to neutral for the coming week.

Date

Last

Open

High

Low

Change %

Sep 28, 2012

1.6167

1.6231

1.6272

1.6114

-0.39%

Sep 27, 2012

1.6231

1.6174

1.6244

1.6166

0.35%

Sep 26, 2012

1.6174

1.6192

1.6209

1.6138

-0.11%

Sep 25, 2012

1.6192

1.6225

1.6267

1.6183

-0.20%

Sep 24, 2012

1.6225

1.6231

1.6244

1.6182

-0.04%

In terms of the data outlook, the picture is very mixed overall; data is not too bad or too good. There is a steady stream of important data throughout the week, especially in the first few days. On Monday, the September PMI Manufacturing print is due, with a Bloomberg News survey showing a consensus forecast of 49.0 from 49.5 in August. This would mark the fifth consecutive month that the manufacturing sector has been contracting. Also due out on Monday is the Mortgage Approvals report for August. Consensus forecasts are calling for an increase from 47.3K to 49.2K. Released right around the same time, if they both come in as expected, the net effect should be neutral on the British Pound.

On Tuesday, the Nationwide House Prices report for September is expected to show stagnation in the housing sector. Also on Tuesday the PMI Construction reading for September is expected to show a reading of 49.9 from 49.0. Coming in below 50.0 for the third time in four months, this data should negate any negative influence the discouraging housing report might provoke. On Wednesday, the September PMI Services print is due to show 53.0 from 53.7. The overall consensus from the September PMIs keeps the growth picture locked in recession for at least another month.

Finally, on Thursday, the Bank of England meets for its September policy meeting. The key interest rate will remain on hold at 0.50% and the Asset Purchase Program will be on hold at £375 billion. The tone at the BoE has switched dramatically over the past few months, with last month’s policy meeting’s Minutes affirming a more hawkish view, in which no members voted to change the quantitative easing program. This has piggybacked on comments made in mid-August by Governor Mervyn King, which suggested that no new rate cuts should be expected. The Credit Suisse Overnight Index Swaps confirm this, with only an 8.0% chance of a 25.0-basis point rate cut this week. The BoE simply renewing its moderate view could lift the British Pound if data and the Fitch Ratings commentary plagues the world’s oldest currency in the beginning part of the week. This tug-and-pull should dominate price action for the coming few days and leaves us looking sideways for the Sterling going forward

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 September 24-28, 2012 actual v. forecast for Euro, GPB, the Franc, and USD

Date

Currency

Event

Actual

Forecast

Previous

Sep. 24 

EUR

German Ifo Business Climate Index 

101.4

102.5

102.3

 

EUR

German Current Assessment 

110.3

111.0

111.1

 

EUR

German Business Expectations 

93.2

95.0

94.2

Sep. 25

EUR

GfK German Consumer Climate 

5.9

5.9

5.9

 

GBP

BBA Mortgage Approvals 

30.5K

28.6K

28.8K

 

USD

CB Consumer Confidence 

70.3

63.0

61.3

 Sep. 26

EUR

German 10-Year Bund Auction 

1.520%

 

1.420%

 

GBP

CBI Distributive Trades Survey 

6

5

-3

 

EUR

German CPI (MoM) 

0.0%

0.0%

0.4%

 

EUR

German CPI (YoY) 

2.0%

2.0%

2.1%

 

USD

New Home Sales 

373K

380K

374K

 Sep. 27

EUR

German Unemployment Change 

9K

10K

11K

 

GBP

Business Investment (QoQ) 

0.9%

-1.5%

-1.5%

 

GBP

Current Account 

-20.8B

-12.4B

-15.4B

 

GBP

GDP (QoQ) 

-0.4%

-0.5%

-0.5%

 

GBP

GDP (YoY) 

-0.5%

-0.5%

-0.5%

 

EUR

Italian 10-Year BTP Auction 

5.24%

 

5.82%

 

USD

Core Durable Goods Orders (MoM) 

-1.6%

0.3%

-1.3%

 

USD

Durable Goods Orders (MoM) 

-13.2%

-5.0%

3.3%

 

USD

Initial Jobless Claims 

359K

378K

385K

 

USD

GDP (QoQ) 

1.3%

1.7%

1.7%

 

USD

Continuing Jobless Claims 

3271K

3285K

3275K

 

USD

Pending Home Sales (MoM) 

-2.6%

-0.7%

2.6%

 Sep. 28

EUR

French GDP (QoQ) 

0.0%

0.0%

0.0%

 

EUR

French Consumer Spending (MoM) 

0.4%

-0.1%

0.4%

 

CHF

KOF Leading Indicators 

1.67

1.57

1.59

 

EUR

CPI (YoY) 

2.7%

2.4%

2.6%

 

USD

Core PCE Price Index (MoM) 

0.1%

0.1%

0.1%

 

USD

Personal Spending (MoM) 

0.5%

0.5%

0.4%

 

USD

Chicago PMI 

49.7

53.0

53.0

 

USD

Michigan Consumer Sentiment 

78.3

79.0

79.2

 

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

Date

Time

Currency

Event

Forecast

Previous

Oct. 01 

08:15

CHF

Retail Sales (YoY) 

5.0% 

3.2% 

 

08:30

CHF

SVME PMI 

47.0 

46.7 

 

15:00

USD

ISM Manufacturing Index 

49.8 

49.6 

Oct. 02 

07:00

GBP

Nationwide HPI (MoM) 

0.2% 

1.3% 

Oct. 03 

10:00

EUR

Retail Sales (MoM) 

-0.2% 

-0.2% 

Oct. 04

12:00

GBP

Interest Rate Decision 

0.50% 

0.50% 

 

12:00

GBP

BOE QE Total 

375B 

375B 

 

12:45

EUR

Interest Rate Decision 

0.75% 

0.75% 

Oct. 05

11:00

EUR

German Factory Orders (MoM) 

-0.7% 

0.5% 

Government Bond Auction

Date Time Country 

Oct 01 10:00 Norway 

Oct 02 09:15 Austria 

Oct 02 09:30 Belgium 

Oct 02 09:30 UK 

Oct 02 14:30 UK 

Oct 03 09:10 Sweden 

Oct 03 10:00 Norway 

Oct 04 08:30 Spain 

Oct 04 08:50 France 

Oct 04 15:00 US 

Oct 05 15:30 Italy 

 

 

 

 

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About: FX Empire Analyst - Barry Norman

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