GBP/USD Outlook Jan. 16-20

GBP/USD  was down this week, falling almost 200 pips, before recovering somewhat to end the week at the 1.53 level.  The upcoming week is a busy one, with  seven releases. Here is an outlook for the upcoming events, and an updated technical analysis for GBP/USD.

British QE expansion is likely in February, and more and more QE means more money printing, and this eventually takes its toll in devaluing the currency.

Updates: Cable managed to stabilize above 1.53, ignoring another dive in home prices, by 0.8% according to Rightmove. Inflation is falling in Britain – it dropped to a level of 4.2% (annualized) as expected. BOE Governor King said that the fact that the UK managed to get a negative interest rate on 35 year bonds is “astonishing”. Money is cheap. GBP/USD is now on higher ground, reaching 1.54. British unemployment is on the rise, reaching 8.4%. Together with lower inflation, chances are higher for another round of QE. Despite the higher chances of pound printing,  European optimism  sent the dollar lower, also against the US dollar.

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

1. Rightmove HPI:  Monday, 00:01.  The Housing Price Index  provides analysts with their first look at housing inflation in the UK. The indicator has dropped for three consecutive m0nths, and is now in negative territory. The monitor is a good indication of the pessimism gripping the UK consumer – little spending, and even less confidence in the economy. This is causing a negative ripple effect which is being felt throughout the economy.
2. Nationwide Consumer Confidence:  Publication time unknown at the moment. Since June, this important indicator  has  recorded a drop  in  every  reading except one.  This confirms that consumer activity continues to be  weak. The markets are predicting little change this month.
3. CPI:  Tuesday, 09:30. This is the key inflation indicator, so traders should take note. The market forecasts are generally quite close to the actual readings. The January forecast calls for lower inflation,  from 4.8% down to 4.2%. RPI has fallen for the past three months, and the markets again are calling for a further drop, from 5.2% to 4.7%.
4. BOE Gov King Speaks:  Tuesday, 10:00. Volatility in the markets is not uncommon following a speech by the head of the central bank. Analysts and traders scrutinize the Governor’s remarks for any hint as to future monetary policy and interest rate decisions.
5. CB Leading Index:  Tuesday, 10:00. This leading composite index  has been in negative territory since September, indicating weak economic activity. The market predictions are usually quite close to the actual readings, so this indicator is rarely a market-mover.
6. Employment Data:  Wednesday, 9:30. The Claimant Count Change  indicator has  fallen over the past four  readings. The good news  for the pound is that the  readings  have been lower than the  forecast for each of these readings. The market is calling for a higher reading this month. Will this month’s reading again beat the market  forecast?  The Unemployment Rate remains stubbornly high at 8.3%, severely hampering the fragile UK economy. The markets predict no change in the rate this month.
7. Retail Sales:  Friday, 9:30. The indicator dropped into negative  territory last month, but the markets are predicting a nice rise to 0.6% for the January reading. A  strong reading would certainly be welcome news for the consumer sector and provide some much-needed positive economic data.

* All times are GMT.

GBP/USD Technical Analysis

Pound/dollar started  the week at 1.5417. It  reached a  high of    1.5469, which is as  close as it came to the  1.57 resistance line  (discussed last week).  The  pound then lost ground,  dropping  sharply to 1.5234, before  recovering  to close the week at 1.5301.

Technical levels from top to bottom

We  begin  with  the level of 1.59, which provided strong support in November, and is now acting as a major resistance line.  1.5815 has proven to be a  strong line of resistance since mid-November.

The round number of 1.57  is providing weak resistance,  and  was  breached several times in  December. 1.5629 is providing strong resistance, as is 1.5525. The round number of 1.55 was tested this week, and could be breached on a sustained upward swing by the pair. Below, 1.5360 is a weak support level. This is followed by 1.5280, which was breached this week.  There is a strong support  line at the 1.52 level, although this line could be tested further if the pair falls. There is strong support at 1.5120, with the final line for now the psychologically important level of 1.50.

I remain bearish on GBP/USD.

Manufacturing and industrial figures were weak, although the retail sector showed some surprising strength in  December.  The markets  clearly have a more favorable view of the US economy  compared to  the UK, so look for the dollar to continue to look strong.

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 the New Zealand dollar (kiwi), read the  NZD forecast.
• For USD/CAD (loonie), check out the  Canadian dollar.
• For the Swiss Franc, see the  USD/CHF forecast.