Looking for the latest outlook, for the current week? Check out the section: British Pound Forecast
After moving up across the board, the Pound expects a very busy week: inflation, employment and retail sales are amongst the events that will move the Pound. Here’s an outlook and an updated technical analysis for GBP/USD.
GBP/USD chart with support and resistance lines marked on it. Click to enlarge:
The unofficial NIESR GDP estimate showed growth of 0.3% in Q4 – an end to British recession. This was one of the main drivers of the Pound. For a rate hike, prices need to rise and jobs need to show that the turnaround wasn’t temporary. All these are supplied this week. Let’s start the review. The technical analysis will follow:
- Rightmove HPI: Published on Monday at midnight GMT. This early bird report of housing prices isn’t always accurate, but tends to have an impact, especially as it’s published early. Two months of rises were followed by two months of drops, with a rather sharp 2.2% fall last month. Prices are expected to remain rather stable this time.
- CPI: Published on Tuesday at 9:30 GMT. Britain almost fell to deflation, but prices began rising two months ago and continued last month with an annualized rate of 1.9%. This is helping the Pound bulls. CPI is expected to accelerate to 2.6% this time. Core CPI is also on the rise and is predicted to rise from 1.9% to 2.3% this time. Also note the Retail Price Index (RPI) which was negative for many months and turned positive last month.
- BOE Inflation Letter: Published after the CPI, only if necessary. Rising inflation could get out of control – out of the government’s target of 1-3%. If the target is missed, BOE governor Mervyn King will need to send a public letter to explain the reasons and the measures. Such a letter will impact the markets as it exposes future actions such as a rate hike. A letter will only be issued if the target is missed – if the expected 2.6% number is significantly exceeded.
- Mervyn King talks: Due at 19:00 GMT. With or without hitting the inflation target, King will make a public appearance. He might speak of Q4 growth, now that the unofficial NIESR GDP estimate showed growth, and both PM Gordon Brown and Alistair Darling expressed optimism.
- Claimant Count Change: Published on Wednesday at 9:30 GMT, together with other events. This is the earliest and most important employment figure that is released in Britain. The number of unemployed people has finally dropped last month. This was very good news. After the drop of 6,300 unemployed people last month, another positive drop is expected – of 3,300.
- Unemployment Rate: Published on Wednesday at 9:30 GMT. Although this is a late figure, it has a strong impact. Economists’ expectations are for a rise to 8%, but such predictions haven’t been realized in the past, and the unemployment rate is currently at 7.9%, being at 7.8% to 7.9% in recent months.
- MPC Meeting Minutes: Published on Wednesday at 9:30 GMT. Together with employment figures, the minutes from the last rate decision are published. There are 7 billion pounds left in the Quantitative Easing program. The statement around the decision wasn’t exciting, and maybe the minutes will reveal the sentiment of the central bank.
- Adam Posen talks: Due on Wednesday at 15:40 GMT. The external member of the MPC has made pessimistic comments in the past, and he may hurt the Pound again, when he speaks at a conference in Prague.
- Public Sector Net Borrowing: Published on Thursday at 9:30 GMT. Britain’s heavy government deficit is frequently cited and is a burden on the Pound. Lending grew to over 20 billion pounds last month, the highest in years. It’s predicted to ease to 18.6 billion and help the Pound this time.
- CBI Industrial Order Expectations: Published on Thursday at 11:00 GMT. The Confederation of British Industry shows a negative, pessimistic figure for quite some time. This number has been improving in the past two months, reaching -42 last time. It’s predicted to take another step upwards and reach -39, still in the negative zone.
- Retail Sales: Published on Friday at 9:30 GMT. This important consumer figure closes the busy week for the Pound. Retail sales disappointed with a drop of 0.3% last month, falling short of expectations again and again. This time, a big correction is predicted – a rise of 1.3%. Such a result will help the Pound near the close of the week.
GBP/USD Technical Analysis
GBP/USD made all the way from the low 1.60s jumping easily above the 1.6110 resistance line and made a strong breakout above the important 1.6260 resistance line. After peaking at 1.6355 it fell and closed at 1.6261 – in a critical point.
So, the critical line is at 1.6260 – this pivotal spot will impact trading. Looking below, 1.6110 is a minor line of support, being broken too many times. All in all, the lines haven’t changed from last week’s outlook.
A more serious line of support is at 1.5720. The Pound traded above this important line in the past 8 months, and it began the comeback from this spot. Looking even lower, 1.5350 was a clear line of support and resistance in the past and will cushion a fall below 1.5720.
Looking up, 1.64 is the next resistance line, being a peak in mid-December, before a dollar rally began. Further above, 1.6746 served as a resistance line a few times in the past and is the serious line.
If the Pound breaks this line, the 2009 high of 1.7040 is above, but such a move probably won’t happen this week.
I became neutral on GBP/USD.
There’s a bit of light at the end of the tunnel. The signs of the end of the recession, rising prices and the turnaround of the economy are all fragile, but are better than figures of previous months. This is enough to hold the Pound from falling.
- For a broad view of all the week’s major event in all currencies, read the forex weekly outlook.
- For the Euro, read the EUR USD Forecast.
- For GBP/USD, look into the British Pound forecast.
- For the Australian dollar, read the AUD/USD forecast.
- For USD/CAD, check out the Canadian dollar forecast.
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