GBP/USD Forecast May 18-22

The British pound  posted strong gains for a second straight week, as   the pair  gained about 270 points.  The pair closed at 1.5708, the highest weekly close since early November 2014. It’s a busy week, with 12 events on the calendar. Here is an outlook on the major events moving the pound and an updated technical analysis for GBP/USD.

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Last week’s UK releases met expectations, so the pound’s rally was due more to weak US releases rather than strong British data. Soft US retail sales highlighted a disappointing week for US data, and Consumer Sentiment slipped badly to end the week.

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

 

1. Rightmove HPI:  Sunday, 23:01. This index provides a snapshot of the level of activity in the UK housing sector. The indicator improved to 1.6% in the April report. Will the upward trend continue in the upcoming release?
2. CPI: Tuesday, 8:30.  CPI remains at very low levels, as the key indicator has posted a flat 0.0% for the past two readings. No change is expected in the April release.
3. PPI Input: Tuesday, 8:30. This index measures inflation in the manufacturing sector. The indicator improved to 0.3%, well above the forecast of -0.5%. The upward trend is expected to continue, with the estimate standing at 0.8%.
4. RPI: Tuesday, 8:30. RPI includes housing costs, which are excluded from CPI. The index has been on a steady decline, and dipped to 0.9% in March, within expectations. Another reading of 0.9% is anticipated in the April report.
5. MPC Official Bank Vote Rates: Wednesday, 8:30. The MPC votes have been unanimous (9-0) to maintain rates at 0.50%, and this is expected to continue in the upcoming release.
6. MPC Asset Purchase Facility Votes:  Wednesday, 8:30. The vote on QE has also been unanimous, and no change is expected.
7. Retail Sales: Thursday, 8:30.  This key indicator came in -0.5% in the March reading, well below the estimate of +0.4%. The forecast for the April report remains at +0.4%.
8. CBI Industrial Order Expectations:  Thursday, 10:00. This manufacturing indicator has struggled since hitting 10 points in January. Little change is expected in the upcoming release, with an estimate of 3 points.
9.  Public Sector Net Borrowing:  Friday, 8:30. The deficit rose in  March to 6.7 billion pounds, within expectations. A much larger deficit is expected in the April release, with a forecast of 7.2 billion pounds.
10. BOE Deputy Governor Nemat Shafik Speaks:  Friday, 9:45.  Shafik will speak at an event in Manchester. A speech that is more hawkish than expected is bullish  for the pound.
11. BOE Governor Mark Carney Speaks:  Friday, 11:00. Carney will  deliver two speeches at an ECB forum in Portugal. The markets will be listening closely for clues regarding the BOE’s future monetary policy stance.

* All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.5437 and dipped to a low of 1.5392. It was all uphill from there, as the pair soared to 1.5815. The pair closed at 1.5708, slightly below resistance at 1.5756 (discussed last week).

Live chart of GBP/USD: [do action=”tradingviews” pair=”GBPUSD” interval=”60″/]

Technical lines from top to bottom

With the pound posting sharp gains, we begin at higher levels:

1.6131 continues to be an important resistance line.

1.6006 is next, just above the symbolic 1.60 level.

1.5909 has  held firm since November 2013.

1.5746 was an important support level in January 2013.

1.5625 has switched to a support level following the pound’s impressive rally.

1.5552  is the next support line.

1.5459 continues to see action. It is a strong support line.

1.5300 is the final support level for now. It switched to support last week, as the pound posted strong gains.

I am  neutral on GBP/USD.

With the pound posting tremendous gains in the month of May, we could be in for a downward correction.  Sentiment over the US economy remains strong, as Q2 is expected to be much stronger than Q1.  Still, the British election results are good news for the pound, as the new majority government  will have the political muscle to take steps to boost the UK economy.

In our latest podcast, we ask: USD: Glass half full or half empty? And also discuss other topics:

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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.