Forex Market: GBP/USD trading outlook for October 20th 2016

Yesterday’s trade (in GMT terms) saw GBP/USD within the range of 1.2253-1.2333. The pair closed at 1.2285, edging down 0.11% compared to Tuesdays close. It has been the 196th drop in the past 363 trading days. The daily high has been a level not seen since October 11th, when a high of 1.2378 was registered. The major pair has increased its slump to 5.34% so far during the current month, after losing 1.23% in September.

At 7:11 GMT today GBP/USD was inching down 0.07% on the day to trade at 1.2277. The pair touched a daily high at 1.2300 during the early phase of the Asian trading session, making an exact test of the daily R2 level, and a daily low at 1.2263 during late Asian trade.

On Thursday GBP/USD trading may be influenced by the following macroeconomic reports and other events as listed below.

Fundamentals

United Kingdom

Retail Sales

Annualized retail sales in the United Kingdom probably rose at a rate of 4.8% in September, according to the median forecast by experts, after in August sales increased by another 6.2%. If expectations were met, September would be the 42nd consecutive month of sales growth.

In monthly terms, retail sales probably rebounded 0.4% in September, according to market expectations. In August, sales at retailers shrank 0.2%, or at a lesser rate than expected. Non-food sales fell 1.9% during the month, with sales of household goods decreasing 5.3% and those of textiles, clothing and footwear being down 3.4%. On the other hand, non-store retail sales rose 2.7% in August from a month ago, with food sales being up 0.7% and fuel sales increasing 0.6%.

Annualized retail sales, without taking into account fuel sales, probably surged 4.5% in September, following a 5.9% growth in August. The latter has been the strongest annual increase since November 2014. If expectations were met, September would be the 53rd consecutive month of growth in annual core sales.

Retail sales represent a short-term indicator, which provides key information about consumption on a national scale. Higher retail sales suggest stronger consumer demand, confidence and economic growth, respectively. Therefore, in case the general index of retail sales rebounded at a faster-than-expected monthly rate in September, this would have a strong bullish effect on the Sterling. The Office for National Statistics is expected to publish the official report at 8:30 GMT.

United States

Initial, Continuing Jobless Claims

The number of people in the United States, who filed for unemployment assistance for the first time during the business week ended on October 14th, probably rose to 250 000, according to market consensus, from 246 000 in the preceding week. The latter has been the lowest number of claims since 1973.

The 4-week moving average, an indicator lacking seasonal effects, was 249 250, marking a decrease by 3 500 compared to the preceding week’s revised down average. It has been the lowest average since November 3rd 1973 (244 000).

The business week, which ended on October 7th, has been the 84th consecutive week, when jobless claims stood below the 300 000 threshold, which suggested a healthy labor market. It has been the longest streak since 1970.

Initial jobless claims number is a short-term indicator, reflecting lay-offs in the country. In case the number of claims met expectations or increased further, this would have a moderate bearish effect on the US dollar.

The number of continuing jobless claims probably rose to the seasonally adjusted 2 050 000 during the business week ended on October 7th, according to the median forecast by experts, from 2 046 000 in the preceding week. The latter represented a decrease by 16 000 compared to the revised up number of claims reported in the week ended on September 23rd. It has also been the lowest level for insured unemployment since June 24th 2000, when 2 033 000 claims were reported. 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 US Department of Labor is to release the weekly report at 12:30 GMT.

Fed’s Dudley speech

At 12:30 GMT the Fed President for New York and also a FOMC member, William Dudley, is to attend a panel discussion with Hong Kong Monetary Authoritys Norman Chan and Bank of Englands Nemat Shafik, at a workshop, which is to examine culture and behavior in the financial services industry in New York.

Existing Home Sales

The index of existing home sales in the United States probably rose 0.4% to a level of 5.35 million in September compared to August, according to the median estimate by experts. In August, sales were 0.9% lower from a month ago to reach 5.33 million, which has been the lowest level since February. Sales of new single-family houses shrank at a monthly rate of 2.3% in August, while sales of condos surged 10.5%. At the same time, the average sales price was 1.0% lower from a month ago.

In case the index rose at a steeper monthly rate than anticipated, this would have a moderate bullish effect on the US dollar. The National Association of Realtors (NAR) is to release the official figure at 14:00 GMT.

Bond Yield Spread

The yield on UK 2-year government bonds went up as high as 0.242% on October 19th, after which it closed at 0.223% to add 1.6 basis points (0.016 percentage point) compared to October 18th.

Meanwhile, the yield on US 2-year government bonds climbed as high as 0.823% on October 19th, after which it fell to 0.803% at the close to lose 0.001 percentage point compared to October 18th.

The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, narrowed to 0.580% on October 19th from 0.597% on October 18th. The October 19th yield spread has been the lowest one since August 18th, when the difference was 0.568%.

Daily, Weekly and Monthly Pivot Levels

By employing the Camarilla calculation method, the daily levels of importance for GBP/USD are presented as follows:

R1 – 1.2292
R2 – 1.2300
R3 (Range Resistance – Sell) – 1.2307
R4 (Long Breakout) – 1.2329
R5 (Breakout Target 1) – 1.2355
R6 (Breakout Target 2) – 1.2365

S1 – 1.2278
S2 – 1.2270
S3 (Range Support – Buy) – 1.2263
S4 (Short Breakout) – 1.2241
S5 (Breakout Target 1) – 1.2215
S6 (Breakout Target 2) – 1.2205

By using the traditional method of calculation, the weekly levels of importance for GBP/USD are presented as follows:

Central Pivot Point – 1.2241
R1 – 1.2392
R2 – 1.2598
R3 – 1.2749
R4 – 1.2901

S1 – 1.2035
S2 – 1.1884
S3 – 1.1678
S4 – 1.1473

In monthly terms, for GBP/USD we have the following pivots:

Central Pivot Point – 1.3113
R1 – 1.3312
R2 – 1.3645
R3 – 1.3844
R4 – 1.4042

S1 – 1.2780
S2 – 1.2581
S3 – 1.2248
S4 – 1.1914