Devising a strategy for trading the GBP/USD requires an intimate knowledge of the technical and fundamental variables that affect this fan favorite pair.
A perfect strategy is elusive for the GBP/USD, but a good or great strategy is within reach. Let’s look at the technical and fundamental variables that will push and pull the GBP/USD this week and see what information we can fold into our decision making.
Technical perspective
For an in-depth analysis of the technical perspective of the GBP/USD, my colleague has graciously prepared the following video. In the video, Anish Lal discusses the weekly view for GBP/USD and important touchstones for the pair.
https://www.youtube.com/watch?v=0a_VBBDfqrY
Fundamental perspective
Monthly Treasury Statement
The US is the first to deliver a significant report to the market. That being, the Monthly Treasury Statement (MTS) at midday, Monday (Canada Central Standard Time). The MTS typically wouldn’t garner more than a moderate level of interest. This month the statement takes on a new gravitas as the US moves closer to reaching its government-mandated debt ceiling. Janet Yellen, US Treasury Secretary, has already begun warning Congress about the looming US debt ceiling. She has urged lawmakers to act (i.e., raise the ceiling) sooner than later to avoid a shutdown of Federal institutions, as occurred in the past.
We might expect Yellen to use the MTS, which is set to report a budget deficit of USD 307 billion, to stress her previously made points. Apathy from lawmakers in this regard could be a bearish intimation for the USD.
UK Unemployment Rate
The UK is next out of the gate, delivering its ILO Unemployment Rate report (July) on Tuesday morning. The Unemployment Rate is a broad indicator of the health of the UK economy. In July, the rate is expected to drop from 4.7% to 4.6%.
One problem with the report is that July is already a month and a half in the past. A lot can happen in six weeks, and thus more up-to-date reports should be considered in conjunction with the ILO Unemployment Rate report.
For one, I like to look at the British Retail Consortium (BRC) Retail Sales for August or Consumer Confidence indices. The Former example, released last week, indicated that retail sales grew 1.5% in August vs an expected 3.2% growth. The retail sales miss may mean that the UK labor stats for July might not be as favorable as expected.
US Consumer Price index
On the same day, but separated by a good 14 hours, the US will release its Consumer Price Index (CPI) report. This CPI will be particularly interesting because of its enormous relevance to the US Federal Reserve and how it judges when it should taper its Asset Purchasing Program.
The Fed has always maintained that the inflation pressure the country has seen in 2021 is transitory. Thus, the idea of tapering its spending has been put off for a great deal of time. If certain goods in the upcoming report retract in price, those that disagree with the Feds position on inflation might be convinced of its transitory nature.
UK Consumer Price Index
The UK will be delivering its own Consumer Price Index report on Tuesday midnight/ Wednesday morning. Inflation in the UK is expected to arrive at 2.9%, above the 2% threshold desired by the Bank of England (BoE).
Talk emanating from the Old Lady suggests that interest rate rises will materialize much sooner than the previously scheduled late 2022. Although we won’t hear from the BoE when the CPI report is released, much can be gleaned from the report that might indicate how a change in the BoE’s position regarding rate rises.
US Retail Sales
Fast forward to Thursday, and we are now looking at the US Retail Sales report for August. This report should be of interest because of the huge disappointment the Non-farm payroll delivered a couple of weeks ago. Will Retail Sales take a similar path, falling far short of expectations, or will they beat the forecast and inject a little bit of optimism into the USD? Retails sales are expected to drop 0.7% for August so there is a bit of wiggle room for the actual value to report stronger than expected.