GBP/USD Outlook Feb. 17-21



The British pound was red hot last week, as GBP/USD jumped about 340 points. The pair closed the week at 1.6744. This week’s highlights include CPI, Claimant Count Change and Retail Sales. Here is an outlook for the main events moving the pound, and an updated technical analysis for GBP/USD.

In the UK, comments from Mark Carney that interest rates could be raised in 2015 sent the pound flying. Over in the US, Unemployment Claims was above the estimate and retail sales numbers weakened in January, hurting the greenback.

Updates:

GBP/USD graph with support and resistance lines on it. Click to enlarge:  GBPUSD Forecast Feb. 17-21

  1. BOE Governor Mark Carney Speaks: Sunday, 9:00. Carney will discuss economic policy and forecasts in a BBC interview. Remarks that are more hawkish than expected could bolster the pound.
  2. Rightmove HPI: Monday, 00:01. This housing inflation index has not looked strong in the second half of 2013, but did post a gain of 1.0% last month. The markets are hoping for another gain in the upcoming release.
  3. CPI: Tuesday, 9:30. CPI is the most important inflation indicator. The index hit 2.0% last month, right on the BOE’s inflation target. No change is expected in the January release.
  4. PPI Input: Tuesday, 9:30. Producer Price Index Input broke a string of declines last month, posting a small gain of +0.1%. The markets are expecting a downturn this time around, with a estimate of -0.4%.
  5. RPI: Tuesday, 9:30.Retail Price Index has been steady and posted a gain of 2.7% last month. No change is expected in the upcoming release.
  6. Claimant Count Change: Wednesday, 9:30. This key indicator can have a strong impact on the movement of GBP/USD. The indicator continues to post drops, but these have been decreasing in size. The December release came in at -24.0 thousand, short of the estimate of -33.8 thousand. The estimate for January stands at -18.3 thousand. The Unemployment Rate dropped to 7.1% last month, surprising the markets which had expected a rate of 7.3%. No change is expected in the January rate.
  7. MPC Official Bank Rate Votes: Wednesday, 9:30. Analysts are always interested in the voting breakdown of key BOE decisions, such as the Bank Rate, which remained at the level 0f 0.50%. The markets are expecting that the decision was unanimous (9-0).
  8. MPC Asset Purchase Facility Votes: Wednesday, 9:30. The BOE made no changes to QE levels, which stand at 375 billion pounds. The markets expect that the decision was unanimous.
  9. Average Earnings Index: Wednesday, 9:30. This indicator is a useful gauge of consumer inflation. The indicator has been quite steady, posting two straight gains of 0.9%. The same figure is expected in the upcoming release.
  10. 10-year Bond Auction: Thursday, Tentative. The average yield on the 10-year bond auction rose slightly in January, coming in at 2.87%. We have not seen 10-year bonds above 3% since July 2011. Will the yield push above this threshold level this time around?
  11. CBI Industrial Order Expectations: Thursday, 11:00. This manufacturing indicator plunged in December, dropping to -2 points from 12 points a month earlier. This was way off the estimate of -10 points. The markets are anticipating a sharp turnaround in January, with an estimate of 6 points.
  12. Retail Sales: Friday, 9:30. The most important consumer spending indicator, Retail Sales sparkled in December, with a 2.6% jump. This crushed the estimate of 0.5%. The estimate for January stands at -0.9%, and a reading in negative territory could send the pound lower.
  13. Public Sector Net Borrowing: Friday, 9:30. After a string of deficits, the markets are expecting a surplus for January, with an estimate of -9.3 billion pounds. In December, the deficit dropped to 10.4 billion, better than the estimate of 12.1 billion.

* All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.6408. The pair dropped to a low of 1.6383 but then roared higher, climbing to a high of 1.6755, breaking past resistance at 1.6705 (discussed last week).

Live chart of GBP/USD:




Technical lines from top to bottom

With the pound surging upwards, we start at higher levels:

We begin with resistance at 1.7180, which was a key support line in early 2006. The line has served in a resistance role since October 2008.

1.6990 is next. This line has been protecting the key 1.70 level and has held firm since October 2008.

1.6705 is a weak line providing support, an unfamiliar role. This line had provided resistance since May 2011. This is followed by the round number of 1.6600.

1.6475 has some breathing room following the pound’s strong gains. 1.6343 is the next support level.

1.6247 continues to provide strong support. This was a key resistance line in October and November 2012.

1.6125 is the final support line for now. This line has held steady since late November.

I am neutral on GBP/USD.

The pound had a stellar week but will the rally continue into next week? UK releases such as PMIs have lost some ground and the BOE has said that there is still plenty of slack in the economy. The pound got a strong lift from an admission from the BOE that an interest rate hike is possible next year, but the pound may run into some turbulence if the economic data falters. In the US, the general direction of the economy is positive, but recent hiccups in employment releases are weighing on the dollar and could delay further QE tapers.

Further reading:




About

Kenny Fisher - Senior Writer

A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.

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