GBP/USD Forecast Oct. 6-10

The British pound  took a tumble last week, dropping almost 300 points, hitting an 11-month low.  GBP/USD closed  the week at  1.5956. This week’s key event is Manufacturing Production.  Here is an outlook on the major events moving the  pound and an updated technical analysis for GBP/USD.

The US dollar received a boost from an excellent Nonfarm Payrolls late in the week. In the UK, a strong GDP couldn’t stop the greenback tidal wave.

GBP/USD graph with support and resistance lines on it.

1. Housing Equity Withdrawal: Monday, 8:30. The quarterly indicator came in at -12.2 billion pounds, a 3-month low. The estimate for the upcoming release is stronger, with an estimate of -11.3 billion.
2. Halifax HPI: Tuesday, 7th-8th. This housing inflation index provides a gauge of activity in the housing sector. The indicator posted a weak gain of 0.1% last month, and little change is expected in the September release.
3. Manufacturing Production:  Tuesday, 8:30. This is the first key event of the week. The indicator has posted two consecutive gains of 0.3% and the forecast for the upcoming release is 0.2%.
4. BOE Credit Conditions Survey:  Tuesday, 8:30. This survey looks at credit conditions in the UK and is closely related to spending and confidence levels. It is released each quarter.
5. 30-year Bond Auction:  Tuesday, Tentative. The yield on these bonds has been steadily falling, with the previous yield coming in at 3.17%. Will  yields slip below the 3% level this time around?
6. NIESR GDP Estimate:  Tuesday, 14:00. This indicator helps analysts track GDP on a monthly basis, as the official GDP release is published each quarter. The indicator has weakened over the year, pointing to a slowdown in the economy. The past two readings came in at 0.6%, the indicator’s lowest level since June 2013.
7. BRC Shop Price Index:  Tuesday, 23:01. The independent measure of inflation at BRC shops has shows year over year declines, contrary to the wider inflation picture. The previous release posted a decline of 1.6%.
8. RICS House Price Balance:  Wednesday, 23:01. This indicator helps gauge activity in the housing sector.  The indicator  continues to post weaker readings, pointing  to  an easing in house inflation in the UK.
9. BoE Asset Official Bank Rate:  Thursday, 11:30.  The BoE is expected to leave the interest rate unchanged at 0.50% and the  asset-purchase facility  program at 375 billion pounds. While two members have  already voted for a rate hike, the rest of the MPC remains wary of hitting the recovery too early. As no statement is released when a change is not announced, the real drama will awaits us in the meeting minutes later in  October.
10. Trade Balance:  Friday, 8:30. This indicator is closely related to currency demand, as foreigners need pounds to buy British goods and services. The UK continues to post trade deficits, and the August release of -10.2 billion pounds was much higher than the estimate.
11. CB Leading Index:  Friday, 9:00.

* All times are GMT

GBP/USD Technical Analysis

GBP/USD  opened the week at 1.6239 and touched a high of 1.6274. It was all downhill after that, as the pair dropped as low as 1.5915, as support held at 1.5909 (discussed last week). The pair closed at 1.5956.

Live chart of GBP/USD:

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

Technical  lines from top to bottom

With the pound sustaining sharp losses, we start at lower levels:

1.6465, which was the bottom in March. Further below, the round number of 1.64 is providing resistance.

1.6310, the next resistance line, was a cushion during  January.

This is followed by 1.6250 which was briefly breached early in the week but recovered.

1.6131, which had provided support since August 2011, has switched to resistance.

1.6006, just above the psychologically important 1.60 level, breached late in the week and has reverted to a resistance role.

1.5909 is an immediate support level. It held firm as the pair dropped sharply.

Next is 1.5746, which  was important support in  January.

The final support line for now is 1.5422, which has held firm since August 2013.

I am  bearish on GBP/USD.

The US dollar has surged higher against its major rivals as US numbers continue to improve. As well, market focus is shifting towards the timetable of an interest rate, as QE winds up. Meanwhile, UK numbers have softened and the anticipated rate hike may take place later rather than sooner.

In our latest podcast, we  discuss the big events for October:

Download it directly here. Subscribe to our podcast  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 GBP/USD (cable), look into the British Pound forecast.
• For the Australian dollar (Aussie), check out the AUD to USD forecast.
• USD/CAD (loonie), check out the Canadian dollar.