The British pound had another rough week, losing about 150 points. The pair closed the week at 1.6563, its lowest level since early April. The upcoming week has a light schedule and there are no major events. Here is an outlook for the main events moving the pound, and an updated technical analysis for GBP/USD.
In the UK, the BOE minutes surprised the markets with the breakdown of the vote on the interest rate decision. The vote was 7-2 to maintain rates, with BOE board members Martin Weale and Ian McCafferty in favor of an immediate rise in the bank rate. This marks the first split vote on the interest rate level in over three years. The fact that there are Bank policymakers who favor a raise in rates could bolster the sagging pound. In the US, manufacturing and housing releases beat the estimates. There was a lot of hype leading up to Janet Yellen’s speech at Jackson Hole on Friday, but the Fed chair focused on the US employment picture and didn’t provide any clues about the timing of an interest rate.
[do action=”autoupdate” tag=”GBPUSDUpdate”/]GBP/USD graph with support and resistance lines on it. Click to enlarge:
- BBA Mortgage Approvals: Tuesday, 8:30. Mortgage Approvals is an important gauge of activity in the housing sector, as most home purchases are financed with a mortgage. The indicator improved to 43.3 thousand last year, almost matching the forecast. The upward trend is expected to continue, with the estimate standing at 44.2 thousand.
- CBI Realized Sales: Thursday, 10:00. This indicator is a leading indicator of consumer spending, since wholesale and retail sales are directly affected by consumer spending levels. The indicator shot up last month to 21 points, compared to 4 points a month earlier. This beat the estimate of 18 points. The markets are anticipating even better news in July, with the estimate standing at 25 points.
- GfK Consumer Confidence: Thursday, 23:05. The UK economy may be improving, but consumer confidence continues to lag behind. The indicator has been above the zero level just once in 2014, indicating ongoing pessimism from UK consumers. Last month, the indicator came in at -2 points, and the estimate for the upcoming release is little changed, at -1 point.
- Nationwide HPI: Friday, 6:00. This housing inflation index helps gauge activity in the UK housing sector. The index slipped to 0.1% in June, well off the estimate of 0.6%. More of the same is expected in the July release, with an estimate of a flat 0.0%.
- Preliminary Business Investment: Friday, Tentative. This quarterly indicator measures the change in capital investments made by government and businesses. The indicator has been steadily moving upwards since February, and hit 2.7% last month, beating the estimate of 2.3%. The markets are expecting another strong gain of 2.1% in the upcoming release.
* All times are GMT
GBP/USD Technical Analysis
GBP/USD opened the week at 1.6718 and quickly touched a high of 1.6738. It was all downhill from there, as the pair dropped sharply, breaking through support at 1.6600 (discussed last week). The pair fell to a low of 1.6561 and closed the week at 1.6563.
Live chart of GBP/USD:
Technical lines from top to bottom
We start with resistance at 1.7375. This line has remained intact since October 2008.
1.7191 was last tested in mid-July. This line marked the high point of a strong rally which began last August, when the pound was trading around 1.52.
1.7108 continues to provide strong resistance. 1.6989 is next.
1.6823 was a strong support line but switched to a resistance role in mid-August.
1.6669 started last week as a weak support line but revered to resistance as the pound continues to nose dive.
Next is the round number of 1.6600. It was breached last week and is currently a weak resistance line.
1.6466 is the next support level. It marked the bottom of a reverse head-and-shoulders in March.
1.6290 has remained intact since early February.
1.6144 marked the start of a dollar rally in April 2013, which saw the pound slip below 1.53.
The final support level for now 1.6062, which has remained firm since October 2012.
I remain bearish on GBP/USD.
It’s been an August to forget for the pound, which has shed over 300 points against the US dollar. The US economy continues to hum smoothly, while the Federal Reserve is expected to raise rates sometime next year, as the US recovery deepens. US GDP for Q2 is expected to be close to 3.9%, and a strong reading could give a broad boost to the US 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.
Share
