Forex Market: GBP/USD daily trading forecast

Yesterday’s trade saw GBP/USD within the range of 1.6712-1.6738. The pair closed at 1.6722, gaining 0.02% on a daily basis.

At 6:56 GMT today GBP/USD was down 0.12% for the day to trade at 1.6708. The pair broke the first key daily support level and touched a daily low at 1.6705 at 6:45 GMT.

Fundamental view

United Kingdom

The cost of living in the United Kingdom probably rose 1.8% in July from a year ago, according to the median estimate by experts. The annualized Consumer Price Index (CPI) increased 1.9% in June. The CPI is the main measure of inflation in the UK for macroeconomic purposes and forms the basis of the inflation target set by the government. Every month about 120 000 samples are made, examining the change in prices of about 650 products. They represent the “market basket” of goods and services to the index itself.

Key categories in the consumer price index are Transport (accounting for 16.2% of the total weight) and Housing, Water, Electricity, Gas and Other fuels with a 14.4% share. Recreation and Culture accounts for 13.4%, Restaurants and Hotels – 11.4% and Food and Non-alcoholic Beverages – 11.2%. The CPI also encompasses Miscellaneous Goods and Services (9.6%), Clothing and Footwear (6.5%), Furniture, Household Equipment and Maintenance (6.1%). Alcoholic Beverages and Tobacco, Health, Communication and Education comprise the remaining 11.2% of the total weight.

Core consumer prices probably increased 1.9% in July, compared to the same month a year ago, following a 2.0% climb in the prior month. The core CPI measures the change in prices of goods and services purchased by consumers, without taking into account volatile components such as food, energy products, alcohol and tobacco.

The Office for National Statistics will publish the official CPI report at 8:30 GMT. Higher-than-expected CPI is usually pound positive.

United States

The annualized index of consumer prices (CPI) in the United States probably remained steady at 2.0% in July, according to market expectations. In monthly terms, the CPI probably increased 0.1% last month, following another 0.3% gain in June.

The CPI is based on a basket of goods and services bought and used by consumers on a daily basis. In the United States the Bureau of Labor Statistics (BLS) surveys the prices of 80 000 consumer items in order to calculate the index. The latter reflects prices of commonly purchased items by primarily urban households, 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, prices of investments such as stocks and bonds and sales prices of homes.

The annualized Core CPI, which excludes prices of food and energy, probably remained unchanged at 1.9% in July. It is usually reported as a seasonally adjusted figure, because consumer patterns are widely fluctuating in dependance on the time of the year. The Core CPI is a key measure, because this is the gauge, which the Federal Reserve Bank examines in order to adjust its monetary policy. The Fed uses the core CPI, because prices of food, oil and gas are highly volatile and central bank’s tools are slow-acting. In case 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 approach or comes in line with the inflation objective, set by the Federal Reserve and considered as providing price stability, or 2%, this will usually support demand for the US dollar. However, quite high rates of inflation (well above central bank’s inflation target) can be harmful to 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.

The number of housing starts in the United States probably rose to 0.970 million in July from 0.893 million during the prior month. Housing Starts represent a gauge to measure residential units, on which construction has already begun, every month. A start in construction is defined as the foundation laying of a building and it encompasses residential housing primarily.

The number of building permits in the country probably increased to 1.000 million in July compared to a month ago, according to the median estimate by experts. In June permits, issued by the government, have been revised up to 0.973 million units from 0.963 million units, as reported previously.

Building permits are permits, issued in order to allow excavation. An increase in the number of building permits and housing starts usually occurs a few months after mortgage rates in the country have been reduced. Permits usually lead housing starts, but are not required in all regions of the United States. Building permits, as an indicator, provide information regarding demand in US housing market. A higher than anticipated number would support the greenback. The official data by the US Census Bureau is due out at 12:30 GMT.

Technical view

According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 1.6724. In case GBP/USD manages to breach the first resistance level at 1.6736, it will probably continue up to test 1.6750. In case the second key resistance is broken, the pair will probably attempt to advance to 1.6762.

If GBP/USD manages to breach the first key support at 1.6710, it will probably continue to slide and test 1.6698. With this second key support broken, the movement to the downside will probably continue to 1.6684.

The mid-Pivot levels for today are as follows: M1 – 1.6691, M2 – 1.6704, M3 – 1.6717, M4 – 1.6730, M5 – 1.6743, M6 – 1.6756.

In weekly terms, the central pivot point is at 1.6731. The three key resistance levels are as follows: R1 – 1.6803, R2 – 1.6915, R3 – 1.6987. The three key support levels are: S1 – 1.6619, S2 – 1.6547, S3 – 1.6435.