GBP/USD Forecast Jan. 12-16 2015

The  British pound  continues to slide, as  GBP/USD fell for a fourth straight week. The pair lost about 140 points, closing at 1.5146.  The pound is now at its lowest level since July 2013. This  week’s  major event is CPI.  Here is an outlook on the major events moving the  pound and an updated technical analysis for GBP/USD.

The health of the UK economy continues to raise concerns, as British Construction and Services PMIs softened in December. There  was some good news  from the manufacturing front, as Manufacturing Production bounced back with a strong gain.  In the US, employment data was solid, as Nonfarm Payrolls was higher than expected, and the unemployment rate fell to 5.6%.

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

1. BRC Retail Sales Monitor:  Tuesday, 00:01. This indicator gauges retail sales in BRC shops. The November reading looked sharp, with a gain of 0.9%.
2. CPI:  Tuesday, 9:30. CPI is the primary gauge of consumer inflation and can have a strong impact on the direction of GBP/USD. The index slipped to 1.0% in November, and the markets are expecting a weak gain of 0.7% in the upcoming release.
3. PPI Input:  Tuesday, 9:30. This important indicators measures inflation in the manufacturing sector. The markets are expecting a modest gain of 0.3% in the December release, which would be the first gain shown by the index in over a year. Will the index swing into positive territory?
4. RPI:  Tuesday, 9:30. RPI measures consumer inflation, but unlike CPI, it does not include housing costs. The index fell to 2.0% last month, short of the forecast of 2.2%. The December estimate stands at 1.7%.
5. CB Leading Index:  Wednesday, 10:00. The index is made up of 7 economic indicators, but is considered a minor event since most of the data has already been released.  The indicator has posted two straight declines and the markets will be hoping for better news in the upcoming release.
6. RICS House Price Balance:  Thursday, 00:01. This index helps gauge demand in the housing sector.  The indicator is showing slower activity, as the percentage of surveyors reporting higher prices continues to drop. The November reading came in at 13%, shy of the forecast of 16%. The trend is expected to continue, with the upcoming estimate standing at 11%.

* All times are GMT

GBP/USD Technical Analysis

GBP/USD  opened the week at 1.5284 and climbed to a high of 1.5320. The pair then  reversed  directions,  dropping as low as 1.5034, as  support held firm at 1.5008 (discussed last week). GBP/USD  then moved higher  and closed at 1.5146, but still posted sharp losses on the week.

Live chart of GBP/USD:

Technical  lines from top to bottom

With the pound posting sharp losses, we start at lower levels:

1.5746  remains a strong resistance line. It was an important support level in January 2013. The next resistance line is 1.5625.

1.5539 is a strong resistance line.

1.5416 is next. This line was an important  support line in June 2013, at which time the pound broke through and continued to slide and fell below the 1.49 line.

1.5290 was a cushion in July 2013.

1.5114  has held firm since  March 2013.

1.5008 is protecting the psychologically important 1.50 level.

The final line for now is 1.4813. This  marked the start of a pound rally in July 2013 that saw GBP/USD climb above 1.61.

I  am  bearish  on GBP/USD.

The British economy has slowed down, hurt by weak global demand and a sluggish Europe. Dropping inflation rates mean that the BOE may postpone a raise in interest rates. Over in the US, the  economy continues to look solid, and increasing speculation about a rate hike by the   Fed is bullish for the US dollar.