Forex Market: GBP/USD daily trading outlook

Yesterday’s trade saw GBP/USD within the range of 1.5850 – 1.5623 to settle 1.18% higher at 1.5833, rising for a fourth straight day.

At 07:13 GMT today GBP/USD was up 0.01% for the day to trade at 1.5835. The cross held in a daily range of 1.5807 – 1.5851 and is up 1.8% for the week, having gained 1.9% the previous week.

Fundamentals

United Kingdom

Annualized retail sales in the United Kingdom probably rose at the rate of 4.8% in May, according to the median forecast by experts, after in April they were up 4.7% from a year earlier. If so, this would be the 26th consecutive month of sales growth. In monthly terms, retail sales probably increased 0.2% last month, following a 1.2% jump in April.

Annualized retail sales, without taking into account fuel sales, probably rose 4.5% in May, following a 4.7% gain in April. Month-on-month, core retail sales are projected at +0.1% after a 1.2% jump in April.

This is a short-term indicator which provides key information about consumption on a national scale. Higher retail sales suggest stronger consumer demand, confidence, and respectively, economic growth. Therefore, in case the index of retail sales increased at a faster-than-projected pace, this would be pound positive. The Office for National Statistics will publish the official report at 08:30 GMT.

United States

The number of people in the United States who filed for unemployment assistance for the first time during the week ended June 13th probably fell to 275 000 from 279 000 in the previous seven days. The 4-week moving average, an indicator used to iron out week-to-week volatility, was at 278 750 last week, above the previous weeks upward-revised average.

Initial jobless claims number is a short-term indicator, reflecting lay-offs in the country. In case the count of claims dropped more than projected, this would have a bullish effect on the greenback.

The number of continuing jobless claims edged down to 2 200 000 during the week ended June 6th from 2 265 000 the previous period. This indicator reflects the actual number of people unemployed and currently receiving unemployment benefits, who filed for unemployment assistance at least two weeks ago. The Department of Labor is to release the weekly report at 12:30 GMT.

Inflation

Annualized consumer inflation in the United States will probably come in flat in May, registering a fifth consecutive non-growth month. Consumer prices fell 0.2% in April due to a continued decline in energy costs, although the core inflation index beat market forecasts. In monthly terms, the Consumer Price Index (CPI) probably rose 0.5% in May, after jumping 0.1% in April and 0.2% in both March and February.

The CPI is based on a basket of goods and services bought and used by consumers on a daily basis. The Bureau of Labor Statistics (BLS) surveys the prices of 80 000 consumer items in order to calculate the index. It reflects prices of commonly purchased items by urban households primarily, which represent about 87% of the US population. The Bureau processes price data from 23 000 retail and service businesses.

The CPI includes sales taxes, but excludes income taxes, costs of investments such as stocks and bonds and sales prices of homes.

The annualized core consumer inflation, which is stripped of prices of food and energy, probably remained unchanged from 1.8% in April when it beat projections for 1.7%. Month-on-month, core consumer prices are expected to have risen 0.2% after a 0.3% gain in April, which would be the fifth straight monthly increase.

Core CPI is the gauge which the Federal Reserve Bank takes into account in order to adjust its monetary policy because prices of food, oil and gas are highly volatile, while the central bank’s tools are slow-acting. In case, for example, prices of gas surge considerably, this could lead to a high rate of inflation, but the central bank will not take action until this increase affects prices of other goods and services.

If the CPI tends to distance from the inflation objective set by the Federal Reserve and considered as providing price stability, this will usually reduce the appeal of the US dollar. However, quite high rates of inflation (well above the central bank’s inflation target) can be harmful to the economy, and as a result, this may lead to the loss of confidence in the local currency. The Bureau of Labor Statistics is to release the official CPI report at 12:30 GMT.

Philadelphia manufacturing

A separate report by the Federal Reserve Bank of Philadelphia is expected to show at 14:00 GMT that its manufacturing activity index for the region probably rose to 8.0 in June from 6.7 in May. This would be the highest reading December 2014.

The index is based on a monthly business survey (the Business Outlook Survey), measuring manufacturing activity in the third district of the Federal Reserve, Philadelphia. Participants share their opinion about the direction of business changes in overall economy and different indicators of activity in their companies, such as employment, working hours, new and existing orders, deliveries, inventories, delivery time, price etc. The results are presented as the difference between the percentages of positive and negative projections. A level above zero is indicative of improving conditions, while a level below zero reflects a worsening in conditions. Higher-than-expected index readings would have a bullish effect on the greenback.

Pivot points

According to Binary Tribune’s daily analysis, the pair’s central pivot point stands at 1.5769. In case it penetrates the first resistance level at 1.5914, it will encounter next resistance at 1.5996. If breached, upside movement may attempt to advance to 1.6141.

If the cross drops below its S1 level at 1.5687, it will next see support at 1.5542. If the second key support zone is breached, downward movement may extend to 1.5460.

In weekly terms, the central pivot point is at 1.5460. The three key resistance levels are as follows: R1 – 1.5701, R2 – 1.5843, R3 – 1.6084. The three key support levels are: S1 – 1.5318, S2 – 1.5077, S3 – 1.4935.