GBP/USD Forecast May 11-15

The British pound  roared last week,  posting a gain of close to 300 points.  The pair closed at 1.5432, the highest weekly close since mid-December. It’s a busy week, with 11 events on the calendar. Here is an outlook on the major events moving the pound and an updated technical analysis for GBP/USD.

British PMIs were mixed last week, as Construction PMI slipped  while Services PMI beat expectations. The  pound took advantage of a mixed NFP report  and posted a spectacular rally.

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

1. Official Bank Rate: Monday, 11:00. The British economy is steady but unspectacular, so the markets are expecting the BOE  to maintain interest rates at 0.50%, where they have been pegged since early 2009.
2. Asset Purchase Facility: Monday, 11:00. The BOE has kept its QE program steady at 375 billion since 2012, and no change is anticipated in the upcoming report.
3. BRC Retail Sales Monitor: Tuesday, 23:01. This index measures consumer spending, based on readings from BRC shops. The indicator soared with a gain of 3.2% in March, compared to a 0.2% gain a month earlier. This marked an 11-month high. Will the indicator post another strong reading in the April release?
4. Manufacturing Production: Tuesday, 8:30. Manufacturing Production is a key release and should be treated by traders as a market-mover.  The indicator bounced back in February with a gain of 0.4%, matching the estimate. Little change is expected in the March report.
5. NIESR GDP Estimate: Tuesday, 14:00.  This indicator helps analysts track GDP on a monthly basis, as official GDP data is released only each quarter. The indicator has been very steady, with three gains of 0.6% in the past four readings.
6. Average Earnings Index: Wednesday, 8:30. This is an important indicator of consumer inflation. The index has been dipping lower, and came in at 1.7% in February, within expectations. Another gain of 1.7% is expected in the March report.
7. Claimant Count Change: Wednesday, 8:30. This is one of the most important indicators, is a key release, and an unexpected reading can have a dramatic effect on the movement of GBP/USD. The unemployment rolls continue to fall, although the March reading of -20.7 thousand fell short of the estimate of -29.1 thousand. Little change is expected in the April report, with a forecast of -20.1 thousand. The unemployment rate is expected to dip from 5.6% to 5.5%.
8.  BOE Inflation Report: Wednesday, 9:30. This quarterly report details the BOE’s inflation projections for the next two years.   With inflation at low levels and dropping, the markets will be paying close attention to the report and BOE Governor Mark Carey’s press conference.
9. RICS House Price Balance: Wednesday, 23:01.   This indicator provides a snapshot of the level of activity in the UK housing sector. The indicator improved to 21% in March, marking a 6-month high. This beat the estimate of 15%. The estimate for the April reading stands at 22%.
10. Construction Output:  Friday, 8:30. This minor event has struggled, posting four declines in the past five releases. The February reading showed came in at -0.9%, far short of the estimate of 1.9%. The markets are expecting a strong upswing in March, with an estimate of 4.1%.
11. CB Leading Index: Friday, 13:30. This event is comprised of 7 indicators, but most of the data has already been released. The indicator posted a gain of 0.6% in February, up from 0.2% a month earlier. Will the upswing continue in the March report?

* All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.5151 and quickly dipped to 1.5088. It was all uphill from there, as the pair soared to 1.5525, as resistance  remained firm at 1.5552 (discussed last week). The pair closed at 1.5432.

Live chart of GBP/USD: [do action=”tradingviews” pair=”GBPUSD” interval=”60″/]

Technical lines from top to bottom

With the pound posting sharp gains, we begin at higher levels:

1.5909 has  held firm since November 2013.

1.5746 was an important support level in January 2013.

1.5625 is the next resistance line.

1.5552  was tested  as the pair posted sharp gains. This line marked the start of a dollar rally in late February, which saw GBP/USD drop close to the 1.50 line.

1.5459 continues to see action. It is currently a weak resistance line and could see action early in the week.

1.5300 was easily breached  and has switched to a support role.  The next resistance line is 1.5215.

1.5114 has strengthened on the pound’s strong upward move.

1.5008  is the  final support line for now.  It is protecting the symbolic 1.50 level.

I am  neutral on GBP/USD.

After the pound exploded last week, we could be in for a downward correction. At the same time, the British election shocked with a majority for the incumbent Conservatives, defying the polls which called for a photo finish. The pound could gain some momentum from the elections results.

In this week’s podcast, we take tips from Yellen, discuss commodity currencies and preview next week’s events

Subscribe to Market Movers on iTunes

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 kiwi, see the NZDUSD forecast.
• For the Australian dollar (Aussie), check out the AUD to USD forecast.
• USD/CAD (loonie), check out the Canadian dollar.