Forex Market: GBP/USD trading forecast for July 20th

Friday’s trade saw GBP/USD within the range of 1.5554-1.5672. The pair closed at 1.5609, down 0.01% on a daily basis and extending losses from Thursday. The daily low has also been the lowest level since July 14th, when the cross registered a low of 1.5449. GBP/USD rose 0.53% for the whole week, which has been the first gain in the past four weeks.

No relevant macroeconomic reports are scheduled for release from the United Kingdom and the United States on July 20th.

The shift in focus

According to market analysts, as the risk of Greece leaving the euro area subsided, the market players began focusing their attention again on monetary policy divergence between the European Central Bank and the Federal Reserve.

On the other hand, investors are keenly looking for clues on the timing of interest rate hikes, which the Federal Reserve and Bank of England plan to introduce.

“The focus is turning to the U.S. rate cycle, and (the market reckons) a September rate hike is still, if not probable, at least possible,” Adam Cole, RBC Capital Markets global head of FX strategy, explained, cited by Reuters. “Thats picked up from Greece as the main driver of our market and therefore the dollar is, in a fairly parallel move, stronger off the back of it … From now the euro goes down primarily because the dollar is going up.”

During a speech at the Lincoln Cathedral on Thursday, BoE Governor, Mark Carney, indicated that the central banks decision on the rate hike will probably become a fact by the end of 2015, while monetary policy tightening is expected to be in a gradual manner. According to extracts from that speech: ”In my view, with the healing of the financial sector and the lessening of some of the headwinds facing the economy, that concern has become less pressing with the passage of time. As I made clear in my first open letter in February, were downside risks to inflation to materialise the MPC could decide either to expand the Asset Purchase Facility or to cut Bank Rate further towards zero from its current level of 0.5 per cent. In the current circumstances there is no need to wait to raise rates because of a risk management approach and run the risk of inflation overshooting target.”

”It also seems likely that the equilibrium interest rate will move only slowly back up towards historically more ‘normal’ levels. Everything else equal, that suggests a prospective tightening cycle that, once it starts, will be longer and shallower than those of the past. In other words, we expect Bank Rate increases to be gradual, and limited to a level below past averages.”

”It would not seem unreasonable to me to expect that once normalisation begins, interest rate increases would proceed slowly and rise to a level in the medium term that is perhaps about half as high as historical averages. In my view, the decision as to when to start such a process of adjustment will likely come into sharper relief around the turn of this year.”

Correlation with other Majors

Taking into account the week ended on July 19th and the daily closing levels of the major currency pairs, we come to the following conclusions in regard to the strength of relationship:

GBP/USD to USD/CAD (0.4191, or moderate)
GBP/USD to USD/JPY (0.3377, or moderate)
GBP/USD to USD/CHF (0.0574, or very weak)
GBP/USD to AUD/USD (0.0174, or very weak)
GBP/USD to EUR/USD (-0.2977, or weak)
GBP/USD to NZD/USD (-0.3444, or moderate)

1. During the examined period GBP/USD moved moderately in one and the same direction with USD/CAD and USD/JPY, while moving moderately in the opposite direction compared to NZD/USD.

2. The relation between GBP/USD and EUR/USD was insignificant.

3. GBP/USD and USD/CHF, as well as GBP/USD and AUD/USD moved almost independently during the past week.

Pivot Points

According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 1.5612. In case GBP/USD manages to breach the first resistance level at 1.5669, it will probably continue up to test 1.5730. In case the second key resistance is broken, the pair will probably attempt to advance to 1.5787.

If GBP/USD manages to breach the first key support at 1.5551, it will probably continue to slide and test 1.5494. With this second key support broken, the movement to the downside will probably continue to 1.5433.

The mid-Pivot levels for today are as follows: M1 – 1.5464, M2 – 1.5523, M3 – 1.5582, M4 – 1.5641, M5 – 1.5700, M6 – 1.5759.

In weekly terms, the central pivot point is at 1.5578. The three key resistance levels are as follows: R1 – 1.5706, R2 – 1.5804, R3 – 1.5932. The three key support levels are: S1 – 1.5480, S2 – 1.5352, S3 – 1.5254.