GBP/USD Outlook March 25-29

The British pound enjoyed another strong week,  gaining  over one cent against the US dollar. GBP/USD pushed above the 1.52 level, closing at 1.5229. There are nine  releases in the upcoming week,  highlighted by Current Account.  Here is an outlook of the events and an updated technical analysis for GBP/USD.

The pound took advantage of positive British data late last week. Retail Sales jumped 2.1%, its sharpest rise since March 2010. As well, Public Sector Net Borrowing posted a much smaller deficit than expected.

Updates: BBA Mortgage Approvals dropped to 30.5 thousand, well below the forecast of 33.6K. Chancellor George Osborne testified before the Treasury Select Committee in London. CBI Realized Sales slumped to a seven-month low, dropping to 0 points. The estimate stood at 12 points. Current Account, this week’s key release, posted a larger deficit, of 14.0 billion pounds. This was a major disappointment, as the markets were anticipating a deficit of 12.8 billion pounds. Final GDP posted its fourth decline in five months, dropping 0.3%. This matched the market estimate. Revised Business Investment declined 0.8%, which beat the forecast of -1.2%. GBP/USD is testing the 1.51 line, and was trading just above it, at 1.5108. GfK Consumer Confidence continues to look very weak, posting a reading of -26 points. The estimate stood at -27. Nationwide HPI fell to 0.0%, missing the estimate of 0.2%. Index of Services declined 0.2%, matching the forecast. The markets are closed on Friday for a bank holiday. GBP/USD is steady, as the pair was trading at 1.5151.

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

1. BBA Mortgage Approvals: Monday, 9:30. This important housing indicator has been fairly steady, but has  fallen below the market estimate  for the past three readings. The indicator dipped to 32.3 thousand in the February reading,  well below the estimate of 34.2 thousand. The  March estimate stands at 33.6 thousand.
2. Nationwide HPI: Tuesday, 26th-29th. Analysts are interested in House Price indexes as higher house prices signify more activity in the housing market. The index recorded a modest gain of 0.2% in the February release, and no change is expected in the March reading.
3. Chancellor George Osborne Speaks: Tuesday, 10:00. Chancellor Osborne released the UK budget last week, and will testify before the Treasury Select Committee in London. Remarks by the Chancellor which are more hawkish than expected is bullish for the British pound.
4. CBI Realized Sales: Tuesday, 11:00. The indicator came in at 8 points in February, a steep drop from the January reading of 17 points. As well, this figure was well below the estimate of 15 points. The markets are expecting a rebound in March, with a forecast of 12 points. Will the indicator meet or beat the estimate?
5. Current Account: Wednesday, 9:30. Current Account is the highlight of this week. This is a key indicator, as a stronger reading indicates that foreigners are purchasing more British goods and services with pounds. The February reading saw a sharp reduction in the Current Account Deficit, which fell to 12.8 billion pounds. This beat the estimate of 14.1 billion pounds. The March forecast calls for a modest drop in the deficit, at 12.4 billion pounds.
6. Final GDP: Wednesday, 9:30. Analysts are always interested in GDP releases, which measure the change in value of goods and services of the UK economy.  Final  GDP, which  is released each  quarter,  jumped 0.9% in Q4, its sharpest increase since 2010. The markets are bracing for a much lower reading in March, with an estimate of -0.3%. Will the indicator stay in positive territory?
7. GfK Consumer Confidence: Wednesday, 00:01. Consumer Confidence has been mired deep in negative territory, signifying that the British consumer is very pessimistic about the economy’s prospects. The indicator has been pegged at -26 points for the past two readings, and the March estimate stands at -27 points.
8. BOE Credit Conditions Survey: Thursday, 9:30. This indicator is released on a quarterly basis. The survey polls bank and other lenders for their views of short-term credit conditions in the UK. If the indicator points to rising debt levels, this in turn is indicative that lenders are comfortable providing loans and consumers are borrowing and spending more.
9. Index of Services:  Thursday, 9:30. This third-tier indicator measures the change in Gross Value Added (GVA) of the government and private service sectors. The index dropped sharply from the February reading, posting a decline of 0.1%. The markets are expecting another weak release in March, with an estimate of -0.2%.

GBP/USD Technical Analysis

GBP/USD opened the week at 1.5102. The pair dropped to a low of 1.5026, briefly breaching the support line of 1.5061 (discussed last week). The pair then rebounded, touching a high of 1.5247, before closing the week at 1.5229.

Technical lines from top to bottom:

We begin with resistance at 1.5750. This line saw a lot of activity in the first half of February, before the pound began its
recent slump. This is followed by resistance at 1.5648. Below, there is resistance at 1.5567. This   line has remained in place since mid-February. This is followed by resistance at 1.5484. Next, there is resistance at 1.5406. Next, there is resistance is at 1.5282, which has not been  tested since late February.

GBP/USD is receiving support at 1.5189. This line was in a resistance role last week, but the pair broke through as pushed higher. Next, there is support at 1.5061.  This is  followed  by 1.5010, protecting the all important 1.50 level. We next encounter support at 1.4896, just below the round number of 1.49. Below is 1.4765, which has remained intact since June 2010. The finals support level for now is at 1.4665.

I remain bearish on GBP/USD.

The pound enjoyed another strong week, but let’s not forget that the GBP/USD has plunged about 10 cents since the beginning of the year. The UK economy continues to sputter, in contrast to the US, which has posted some solid numbers of late. Given the sharp contrast in the prospects for the two economies, the pound will have a tough time making more gains against the dollar.

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.