GBPUSD Price Forecast: Economic Data Brings $1.20 into Play

It was a busy start to the day for the Pound. Following last Friday’s 1.42% slide, fueled by US inflation figures, the Pound was down in the morning session.

Economic data from the UK, including GDP and manufacturing and industrial production figures, weighed on the Pound.

Risk aversion contributed to the downside, however, with market angst over this week’s Fed monetary policy and projections weighing on riskier assets.

UK Economy Slows in April with Manufacturing Production in Decline

In April, industrial production fell by 0.6%, with manufacturing production sliding by 1.0%. Economists had forecast both to increase by 0.2%.

Amidst the current inflation environment, GDP numbers also disappointed.

The UK economy contracted by 0.3% in April versus a forecasted 0.1% expansion. The economy had contracted by 0.1% in March.

Quarter-on-quarter, the economy slowed to just 0.2% growth after 0.8% growth in the first quarter of 2022.

According to the Office for National Statistics,

• Services fell by 0.3% in April, the main contributor to April’s contraction.
• Despite the fall in services, consumer-facing services grew by 2.6% in April, reversing a 1.8% decline in March.
• Retail trade was also on the rise, supported by food store sales. While up in April, consumer-facing services were still 4.4% below pre-COVID-19 levels.
• Production declined by 0.6%, weighed by the 1.0% slide in manufacturing production.
• Price increases and supply chain shortages continued to impact production.

With economists expecting the Bank of England to continue hiking rates to curb inflation, the Pound reflected concerns over the economic outlook.

While the stats influenced, the Bank of England announced today that it would remove a temporary capital buffer adjustment.

According to Reuters, the BoE said,

“Removing a temporary capital adjustment buffer that is no longer necessary aims to achieve simplicity and enhances proportionality, thereby facilitating effective competition.”

GBPUSD Price Action

At the time of writing, the Pound was down 0.80% to $1.2217. A mixed start to the day saw the Pound rise to a morning high of $1.2321.

Falling short of the day’s $1.2378 pivot and the First Major Resistance Level at $1.2454, the Pound slid to a morning low of $1.2210.

The reversal saw the Pound fall through the First Major Support Level at $1.2238.

Technical Indicators

The Pound will need to move through the First Major Support Level and the $1.2378 pivot to target the First Major Resistance Level at $1.2454.

A marked shift in market risk sentiment would be needed to support a return to $1.24.

An extended rally would test resistance at $1.25. The Second Major Resistance Level sits at $1.2594.

Failure to move through First Major Support Level and the pivot would leave the Second Major Support Level at $1.2161 in play.

Barring an extended sell-off throughout the day, the Pound should avoid sub-$1.21.

Looking at the EMAs and the 4-hourly candlestick chart (below), it is a bearish signal. The Pound sits below the 50-day EMA, currently at $1.2470.

This morning, the 50-day EMA slid back from the 100-day EMA. The 100-day EMA fell back from the 200-day EMA, Pound negative.

A return to $1.2350 would give the bulls a run at the 50-day EMA.

Next Up

NIESR GDP numbers for the UK are due out this afternoon. We don’t expect better-than-expected numbers to provide the Pound with much support.