GBP/USD Outlook Feb. 13-17 2012

The British pound  lost  some  ground to  the dollar this week, dropping to the 1.5730 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.

The British Monetary Policy Committee expanded the Asset Purchase Facility by an additional 50 billion pounds to   £325, as was expected. The pound rose on news of the QE release,  breaking through  the 1.59 level, before retracting at the end of the trading week.

Updates: Cable temporarily enjoyed the  Greek austerity approval  and climbed above 1.58, before returning back down as new worries emerged from Britain. British headline inflation dropped to 3.6% as expected, with other figures dropping even more. GBP/USD is falling to the lowest in February, 1.5670.  British jobless claims continue rising, and this continues hurting the pound. GBP/USD is trading under 1.57, in a downtrend channel. The pound continues to be pressured especially as  the situation in Greece deteriorated. 1.57 caps the cable. The excellent surprise from British retail sales fueled a rally in the pound, that reached 1.5860 before retreating.

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

1. RICS House Price Balance:  Tuesday, 00:01. The House Price Balance  indicator provides an important measure of inflation and activity in the housing industry. The indicator  came in  at -16% for January, indicating that most property surveyors reported a drop in  housing prices. On the positive side,  this was the indicator’s best reading since August 2010. The market forecast is  slightly  better for February,  but  the  housing sector  remains very weak.
2. CPI:  Tuesday, 9:30.  The main inflation index has been falling, with a reading of 4.2% in January. The market forecast, which  usually is quite accurate, calls for another drop in February, to 3.6%.
3. CB Leading Index:  Tuesday, 10:00. The  Conference Board Leading    Index  is based on seven economic indicators. After posting  some strong numbers in Q3 of 2011,  the index  has dropped, and posted a  decrease of 0.6% in January, its worst reading since 2009.  Will the index rebound in February?
4. Claimant Count Change:  Wednesday, 9:30. This indicator has steadily fallen over five straight months, and each reading has been much stronger than the market prediction. However, the markets are forecasting   an increase in unemployment claims for the February reading. The unemployment rate  remains  high at  8.4%, making sustained economic growth difficult. The forecast is unchanged  for this month’s reading.
5. BOE Gov King Speaks:  Wednesday, 10:30.  A statement  by the head of the central bank is often a market-mover. Analysts and traders scrutinize the Governor’s remarks for any hint as to future monetary policy and interest rate decisions.
6. Nationwide Consumer Confidence: Friday, Publication Time Tentative. This  indicator is  based on a survey of about  1,000 consumers, who are asked to rate business conditions in the UK. The indicator’s previous reading  came in at 38, indicating low consumer  confidence in the economy.
7. Retail Sales:  Friday, 9:30. Retail sales is one of the most important indicators of consumer spending. The indicator  rose in January by 0.6%, which was certainly good news for the fragile UK economy. However, the markets are calling for a sharp drop, down to -0.3%. Will the indicator surprise the markets, and stay in positive territory this month?

* All times are GMT.

GBP/USD Technical Analysis

Pound/dollar started  the week at 1.5801.  The pair climbed as high as 1.5929, briefly breaking through the resistance line of 1.59  (discussed last week). It then  fell sharply to a low of  1.5731, closing the week at 1.5730.

Technical levels from top to bottom

We  begin  with  the strong resistance level of 1.6472, which has not been tested since August 2011. The next line of resistance is at 1.6426. This is followed by resistance at 1.6265. Next, 1.6132 has provided strong resistance since November of last year. Below, there is resistance at 1.6065, followed by strong resistance at the psychologically important figure of 1.60. The line of 1.59, which was briefly breached this week, is a weak resistance line for the pair.

With the dollar rebounding, the important support level of 1.5780 was breached. The  next line of    support is at 1.5730, where the pair closed this week.  Below, there is support at 1.5706, which could be tested  on any downward swing by the pair.  There is further support for the pair at  1.5670, followed by the line of 1.5629. Below, 1.5520 is providing strong support. Finally, the round number  of 1.54, which served as strong support in November and December of 2011,  is again  providing support to the pair.

I remain  bullish on GBP/USD.

GBP/USD  broke the 1.59 level this week, which hasn’t happened since  November 2011.  The pound had a stellar January, and  has  made strong gains  against the  dollar, despite  better economic  conditions in the US.

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  forecast.
• For the Swiss Franc, see the  USD/CHF forecast.