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WEEK AHEAD: MARCH 01

Short Description

The British pound has been the top rising G10 currency this year. I look at the chart and story behind the GBP/USD forex pair, while also running through the week’s economic calendar. Thanks! Rich

Video Script

Will GBP/USD remain top rising G10 currency this year? - THE WEEK AHEAD (Mar 1-5, 2021)

 

Hi everyone, I’m here again to help you prepare for the week ahead in financial markets and for those forex traders watching - you’ll probably be aware that the British pound has been the top rising G10 currency this year. So I’ll look at the chart and story behind the GBP/USD forex pair, while also running through the week’s economic calendar.

After a strong run in 2020, which has accelerated since November, GBP/USD faces resistance from 1.435, which is the peak from 2018. The next resistance is 1.50, the spike high reached on the night of the EU referendum. And lastly there is 1.59, the high reached in 2015. Major support is 1.35 then back down at 1.20. The short term trend is up but overbought conditions increase the risk that these resistance levels hold.

Right before I talk about the story around the pound, let me first run through the key events in this week’s economic calendar. We start the week with manufacturing PMIs from China, Europe, the UK and US on Monday. The RBA rate decision and Eurozone CPI are on Tuesday. Wednesday sees Australian Q4 GDP then global services PMIs as well as US ADP employment. Thursday has Australian retail sales, Eurozone retail sales and US factory orders. Then we round off the first week of the month as usual with US non-farm payrolls.

So I’ve talked in several videos now about the global reflation trade- which would be a hard topic to avoid because it’s the dominant market theme this year. The pound has benefitting from this reflation trade, which has hurt the US dollar ever since the US election. That’s because the UK is an export-led country that also does a lot in financial services, which tends to do well when bond yields are rising.

There is also a vaccine story here. It’s no coincidence that the among the G10 nations, the UK has completed the highest number of vaccinations per capita. Of course, the quicker the vaccine rollout - hopefully - the quicker things get back to normal. However this is also where there could be some trouble for the pound as we run into resistance. Prime Minister Boris Johnson’s four-stage plan to undo COVID-19 restrictions is a lot slower than many had hoped and could weigh on the economic optimism behind the gains in Sterling.

The other big factor behind the global reflation trade is stimulus. Now we mainly need to watch the US and Joe Biden’s giant $1.9 trillion covid relief bill- but the UK is planning its own stimulus. This week is the UK Budget and we’re expecting to learn more about Boris Johnson’s Green industrial revolution. Higher government spending to boost the economy while interest rates are low should be received well and be a positive for the pound. However, there has also been talk that Chancellor Rishi Sunak will try to raise corporation tax to help pay for the extra spending- and that poses a significant downside risk to the pound. 

Right thanks everyone, good luck trading this week and make sure to subscribe so you don’t miss the next episode of the week ahead.