The British pound posted its third straight weekly gain, as GBP/USD gained about 150 points last week. The pair closed at 1.5383. This week’s highlights are CPI and Claimant Count Change. Here is an outlook on the major events moving the pound and an updated technical analysis for GBP/USD.
The pound posted strong gains on the BOE inflation report, which said that inflation levels would improve and wages were starting to pick up. It was a rough week for key US numbers. Jobless claims jumped above the 300 thousand level and retail sales and consumer confidence softened.
[do action=”autoupdate” tag=”GBPUSDUpdate”/]GBP/USD graph with support and resistance lines on it. Click to enlarge:
- Rightmove HPI: Monday, 00:01. The indicator helps measure the amount of activity in the UK housing sector. The index bounced back in January with a strong gain of 1.4% after two straight declines.
- CPI: Tuesday, 9:30. This is the first key event of the week. CPI is the primary gauge of consumer inflation and can have a major effect on the movement of GBP/USD. The index slipped to just 0.5% in December and the downturn is expected to continue, with a forecast of 0.3% for January.
- PPI Input: Tuesday, 9:30. This index, which measures manufacturing inflation, continues to post declines. In December, the indicator posted a strong drop of 2.4%, within expectations. The markets are expecting another poor release in January, with the estimate standing at -2.1%.
- RPI: Tuesday, 9:30. RPI is similar to CPI, but includes housing prices. Like CPI, the index continues to fall and slipped to 1.6% in December, within expectations. The forecast for the January reading is 1.2%.
- Average Earnings Index: Wednesday, 9:30. This indicator is an important gauge of consumer inflation. In December, the indicator posted a gain of 1.7%, matching the forecast. No change is expected in the upcoming release.
- Claimant Count Change: Wednesday, 9:30. Claimant Count Change continues to post strong declines. The December report of -29.7 thousand easily beat the forecast of -24.2 thousand. Little change is expected in the upcoming reading. The UK unemployment rate slipped to 5.8% in December, below the estimate of 5.9%. No change is expected in the January reading.
- MPC Official Bank Rate Votes: Wednesday, 9:30. In recent votes, two policymakers had voted in favor of an interest rate, but in the January vote, all policymakers voted against any change to rates. The markets are expecting that the February rate vote was unanimous.
- MPC Asset Purchase Facility Votes: Wednesday, 9:30. Asset Purchase Facility remains at 375 billion pounds, and the votes have been unanimous since June 2013. No change is expected in the upcoming release.
- CBI Industrial Order Expectations: Thursday, 11:00. The indicator dropped from 5 to 4 points in January, shy of the estimate of 6 points. The markets are expecting an upturn in February, with the estimate standing at 7 points.
- Retail Sales: Friday, 9:30. Retail Sales slipped to 0.4% in December but this beat the estimate of -0.6%. The markets are braced for a decline of 0.1% in the January report.
- Public Sector Net Borrowing: Friday, 9:30. The UK has posted strong deficits in the past two readings. In December, the deficit of GBP 12.5 billion was well ahead of the estimate of -9.2 billion. The markets are expecting a surplus in January, with a forecast of -9.5 billion pounds.
* All times are GMT
GBP/USD Technical Analysis
GBP/USD opened the week at 1.5239 and dropped to a low of 1.5196. The pair then rebounded sharply, climbing to a high of 1.5422, as it tested support at 1.5416 (discussed last week). GBP/USD closed the week at 1.5383.
Live chart of GBP/USD:
[do action=”tradingviews” pair=”GBPUSD” interval=”60″/]Technical lines from top to bottom
We start with resistance at 1.5625, which has held firm since late December.
1.5539 is the next resistance line.
1.5416 was tested last week. This line provided important support in June 2013, at which time the pound broke through and continued to slide and fell below the 1.49 line.
1.5290 has switched to support as the pound posted strong gains last week.
1.5114 is a strong support level.
1.5008 is protecting the symbolic 1.50 level.
1.4813 is the final support line for now. It marked the start of a pound rally in July 2013 that saw GBP/USD climb above 1.61.
I am bearish on GBP/USD.
UK inflation levels are low and could go lower this week, so the pound’s rally could be short-lived. As well, if UK Retail Sales and other key numbers have a poor week, the dollar could make up some ground. The markets will be keeping an eye on the FOMC minutes, and any hints about a rate hike later in the year would likely boost the greenback.
Expectations for a rate hike in the UK are muted, as inflation remains on a downward trend.
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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 kiwi, see the NZDUSD forecast.
- For the Australian dollar (Aussie), check out the AUD to USD forecast.
- USD/CAD (loonie), check out the Canadian dollar.