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GBP/USD: downside still in favour

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 5, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    GBP/USD dropped through the 100 sma and leveled out at 1.4451 the low as markets digested the nonfarm payrolls today and the BoE yesterday.

    "The Bank of England kept rates unchanged in a 9-0 vote and the decision was garnished with a very dovish set of headlines," noted analysts at Rabobank. "It now expects GDP to rise 2.2%, and not 2.5%, this year, while the growth outlook for next year is also cut 0.3%-points to 2.3%. Moreover, the 17Q1 inflation forecast was revised down from 1.5% to 1.2% on the back of weaker-than-expected wage dynamics and tumbling commodity prices."

    All in all, the BoE offers little support for the pound in an environment where the Fed is still relevant this year and until there is shift in the economy's performance, best are still placed for rate hikes in 2016 while the BoE signaled that it is not in any kind of a hurry to begin raising rates this year because inflation is expected to remain below 1.0%.

    Next week, manufacturing production (Dec) is released and analysts at TD Securities explained, industrial production has been on a noisy journey lower over the last year or so, as a strong currency weighs on export demand. "However, sterling has depreciated somewhat in recent months, so we see some possible good news on the horizon for manufacturing, albeit just a slight 0.1% m/m pickup in Dec."

    GBP/USD levels

    Technically, we recently had a low 1.4151 last week. this remains key downside target that guards the January low at 1.4083. "Below it lies the minor psychological 1.4000 region. The 1.3502 January 2009 low remains our primary target medium term but first we still expect a minor bounce to be seen," explained Karen Jones, chief analyst at Commerzbank.
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