GBP/USD Forecast July 14-18

The high-flying pound took a breather last week, as GBP/USD  posted modest losses. The pair closed at  the round number of 1.71. This week’s highlights are  CPI and Claimant Count Change.  Here is an outlook for the main events moving the pound, and an updated technical analysis for GBP/USD.

British Manufacturing Production surprised with a sharp drop, while NIESR GDP Estimate posted another strong gain. As expected the BOE held interest rates at 0.50%. In the US, the FOMC minutes did not shed any light on possible interest rate hikes, and Unemployment Claims looked sharp.

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

1. BRC Retail Sales Monitor: Monday, 23:01. This indicator measure the change in retail sales in BRC stores and precedes the official retail sales release. The indicator posted a gain of 0.5% last month, compared to a jump of 4.2% a month earlier.
2. CPI: Tuesday, 8:30. CPI is the primary gauge of consumer inflation, and an unexpected reading can quickly affect the movement of GBP/USD. The index  slipped to 1.5%, its lowest level in almost  five years. Little change is expected in the upcoming release.
3. PPI Input: Tuesday, 8:30. This index measures inflation in the manufacturing sector. Since August, the indicator has posted just one gain, and the May reading came in at -0.9%, well below the  estimate of +0.1%.
4. RPI: Tuesday, 8:30. This index includes housing costs, which are excluded from CPI. The indicator has been edging lower, and posted a gain of 2.4% last month, its lowest reading in 2014. The estimate stood at 2.5%. No change is expected from last month’s figure.
5. BOE Governor Mark Carney Speaks: Tuesday, 9:00.  Carney will testify about the Financial Stability Report at the House of Commons Treasury Committee in London. Any clues as to the timing of a rate hike could have a significant impact on the movement of GBP/USD.
6. Claimant Count Change: Wednesday, 8:30. This is one of the most important economic indicators and should be treated by traders as a market-mover. Unemployment claims continue to fall at an impressive clip, and the May reading came in at -27.4 thousand. This beat the estimate of -25.0 thousand. The markets are expecting another strong reading, with the  estimate standing at -27.1 thousand. Unemployment Rate is expected to dip from 6.6% to 6.5%, which would be the lowest level since February 2009.
7. Average Earnings Index: Wednesday, 8:30. Average Earnings Index slipped to 0.7% last month, its weakest gain in 2014. This was well below the estimate of 1.2%. The markets are expecting the downward trend to continue, with the estimate standing at 0.5%.

* All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.7153 and dropped to a low of 1.7085. The pair then  reversed directions,  and  climbed to  a high of 1.7168, as  resistance at 1.7180 (discussed last week) held firm.  GBP/USD closed the week at 1.7100.

Live chart of GBP/USD:

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

Technical lines from top to bottom

We  begin with resistance at 1.7624, which has provided support since March 2006. This marked the start of a stellar rally by the pound, which went on to top the 2.11 level.

The next resistance line is 1.7465. This line has held firm since October 2008. 1.7375 is the next resistance line.

1.7180  held firm as the pair pushed higher late in the week before retracting. It  is currently a strong resistance line.

1.7108 has been an important resistance line in July, and was breached last week. It has reverted to a resistance role and is a weak line.

1.6989 is the first support level. It has some breathing room as the pair trades at the 1.71 line.

1.6823  continues  to provide strong support.

1.6684  is the next support line.  It was  an important resistance level in March and early April.

The final support level for now 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.

I  am  neutral  on GBP/USD.

The pound  remains at high levels, despite modest losses last week. US numbers have  been solid  since the awful GDP release, notably employment data. In the UK, CPI and employment numbers will be under the microscope, and these key indicators could have a significant effect on the pound’s fortunes this week.

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.