A lackluster week of British fundamental data made the Pound the worst performer among all G10 currencies through recent trade, and a technical break below multi-month trendline support leaves risks to the downside for the UK currency.
British Pound Outlook Bearish on Technical Break Lower
Fundamental Forecast for British Pound: Bearish
- British Pound technical sell entry ahead
- UK Consumer Confidence points to pessimism on economic conditions
- FX Sentiment points to British Pound losses against Japanese Yen
A lackluster week of British fundamental data made the Pound the worst performer among all G10 currencies through recent trade, and a technical break below multi-month trendline support leaves risks to the downside for the UK currency. Disappointments in GfK consumer confidence survey numbers and late-week international trade figures underlined risks to domestic consumption. A modestly positive revision to second quarter Gross Domestic Product figures failed to elicit a reaction from the UK currency, and it seems that markets had little interest in holding long-GBP exposure through illiquid trading conditions. The week ahead should bring far more liquidity into the FX market, and it will be critical to watch the next GBPUSD moves as traders return to their desks for the first week of September.
Seasonality in global financial markets add further downside risks for the GBP, as stock markets often experience their worst month of the year through September. Indeed, the much-talked-about “September Effect” looms large on FX markets; a strong GBPUSD correlation to the US S&P 500 strongly suggests that the British Pound would lose on S&P declines. Past trends hardly guarantee future results, but we cannot ignore fairly clear seasonal tendencies. Second-tier UK economic event risk may provide some surprises, but we expect that broader financial market risk sentiment will provide the strongest influence on the risk-correlated British Pound.
Traders should keep an eye out for noteworthy results in upcoming Purchasing Managers Index (PMI) Manufacturing, Construction, and Services reports; the surveys are typically leading indicators for economic growth trends. All three surveys are expected to improve on the month of August. Lofty expectations certainly leave room for disappointment and, if anything, risks remain to the downside ahead of PMI data.
Finally, forex traders will keep a very close eye on end-of-week US Nonfarm Payrolls data. The infamous NFP’s report often sparks impressive, if unpredictable, moves in the US S&P 500 and US Dollar. Needless to say, any particularly sizeable surprises in the data could provide substantial GBPUSD volatility. – DR
Written by: David Rodriguez, Quantitative Strategist for DailyFX.com
Questions? Comments? Please send them to David at <[email protected]>