GBP/USD Forecast Aug. 18-22

The British pound lost close to a cent last week, as GBP/USD  continues to weaken. The pair close the week at 1.6687. This week’s major events are CPI and Retail Sales.  Here is an outlook for the main events moving the pound, and an updated technical analysis for GBP/USD.

Strong UK employment number were overshadowed by the BOE Inflation Report, as the BOE downgraded its forecast for wage growth, and the markets took this to mean that a rate hike would be delayed. This led to a sharp drop by the pound.  In the US,  major releases did not fare well, as  retail sales and consumer sentiment numbers softened in  July.

GBP/USD graph with support and resistance lines on it. Click to enlarge:

1. Rightmove HPI: Sunday, 23:01. This housing inflation index is useful as a gauge of activity in the UK housing sector. The index posted a decline of 0.8% last month, marking the first decline since October.
2. CPI: Tuesday, 8:30. CPI is the primary gauge of consumer inflation. The index surprised the markets last month with a 1.9% rise, as the estimate stood at 1.6%. The forecast for the July release is 1.8%.
3. PPI Input: Tuesday, 8:30. This index measures inflation in the manufacturing sector. The indicator continues to post declines, and last month’s reading came in at -0.8%, well below the estimate of 0.2%. Another decline of 0.8% is expected in the upcoming release.
4. RPI: Tuesday, 8:30. RPI includes housing costs, which are excluded in the CPI release. The index has hovered close to 2.5% throughout the year, and the July estimate stands at 2.6%, unchanged from the previous reading.
5. MPC Asset Purchase Facility Votes: Wednesday, 8:30. Analysts closely monitor the voting breakdown of the MPC vote on QE, which is expected to be a unanimous 9-0 decision. A non-unanimous vote indicates some dissension by policymakers as to the desirable QE level.
6. MPC  Official Bank Rate  Votes: Wednesday, 8:30. This decision is also expected to be a unanimous decision. A split vote would  indicate dissension about  the timing of a rate hike  and could affect the direction of GBP/USD.
7. CBI Industrial Order Expectations: Wednesday, 10:00. The indicator plunged to 2 points last month, down from 11 points in the previous release. Another weak reading is expected, with the estimate standing at 4 points.
8. Retail   Sales: Thursday, 8:30. Retail Sales is the most important consumer spending indicator, and should be treated as a market-mover. The indicator posted a paltry gain of 0.1% last month, shy of the estimate of 0.2%. The markets are expecting a stronger reading for July, with an estimate of 0.4%.
9. Public Sector Net Borrowing: Thursday 8:30. The public sector deficit narrowed to GBP 9.5 billion last month, better than the estimate of GBP 10.3 billion. The estimate for the upcoming release stands at GBP 10.1 billion.
10. 10-year Bond Auction: Thursday, Tentative. Yields on 10-year bonds have been  moving lower, and dropped to 2.70% last month. Will the downward trend continue in the upcoming release?

* All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.6776  and  touched a high of  1.6844. The pair  then reversed directions and dropped to a low of 1.6657. GBP/USD closed the week at 1.6687, as support at 1.6669 (discussed last week) held firm.

Live chart of GBP/USD:

[do action=”tradingviews” pair=”GBPUSD” interval=”60″/]

Technical lines from top to bottom

We begin with  resistance  at 1.7375. This line has remained intact since October 2008.

1.7191 was last tested in mid-July.  This line marked the high point of a strong rally which began  last  August, when the pound was trading around 1.52.

1.7108 continues to provide strong resistance. 1.6989 is next.

1.6823  has strengthened as the pound trades at lower levels.

1.6669  held firm in a support role, but is a weak line which could see further action early in the week.

Next  is the round number of 1.6600. It has remained intact since early April,  which marked the start of a rally  that saw the pound flirt with the 1.70 line.

1.6466 marked the bottom of a reverse head-and-shoulders in  March.

1.6290 has remained intact since early February.

The final support level for now is 1.6144. This line marked the start of a dollar rally in April 2013, which saw the pound slip below 1.53.

I  remain  bearish  on GBP/USD.

The markets received a rude surprise from the BOE Inflation Report and BOE Governor Mark Carney warned that any rate hike would be “slow and small”. Meanwhile, in the US, a rate hike is likely by mid-2015 or earlier, and increasing speculation about a move by the Fed is bullish for the dollar.

Further reading:

• For a broad view of all the week’s major events worldwide, read the USD outlook.
• For EUR/USD, check out the Euro to Dollar forecast.
• For the Japanese yen, read the USD/JPY forecast.
• For the Australian dollar (Aussie), check out the AUD to USD forecast.
• For USD/CAD (loonie), check out the Canadian dollar forecast.