GBP/USD Forecast Oct. 12-16

GBP/USD  posted gains of about 100 points last week, closing slightly below the 1.53 line. 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.

GBP/USD got a boost from a solid Manufacturing Production report and managed to overcome the weak  Services PMI. US. There were no surprises from the BOE, as QE and interest rate levels remained unchanged but the tone was not so hawiksh. In the US,  the dovish Fed minutes sent  the greenback broadly lower and the  pound moved higher.

[do action=”autoupdate” tag=”GBPUSDUpdate”/]

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

1. CB Leading Index:  Monday, 13:30. This indicator has struggled recently, having posted three straight  declines.  The July reading  came in at -0.3%.
2. BRC Retail Sales Monitor:  Monday, 23:01.  This indicator is based on retail sales in the BRC shops, and helps analysts track the strength of consumer spending. The indicator had a rough August, posting a sharp decline of 1.0%.
3. CPI:  Tuesday, 8:30. CPI is the primary gauge of consumer inflation, and can have sharp impact on the movement of GBP/USD. The index  continues to  produce readings around the zero level, and  a zero reading is expected in the September release, unchanged from the August report.
4. BOE Credit Conditions Survey:  Tuesday, 8:30. The BOE releases this report every quarter. Increased credit levels usually translates into consumer and business spending, so this is an important indicator.
5. PPI Input:  Tuesday, 8:30. This index measures inflation in the manufacturing sector. The indicator continues to post declines, and slipped in August to -2.4%, although this was close to the forecast. The markets are expecting a strong turnaround in the September release, with an estimate of +0.2%.
6. RPI:  Tuesday, 8:30. RPI is similar to the key CPI indicator, but includes housing prices, while CPI does not. The index has been hovering around 1.0% in recent months, and a reading of 1.0% is expected in the September report.
7. Average Earnings Index:  Wednesday, 8:30. The indicator is a leading indicator of consumer inflation. In July, the indicator jumped to 2.9%, beating expectations. The markets are expecting the upward trend to continue in August, with an estimate of 3.1%.
8. Claimant Count Change:  Wednesday, 8:30. This is one of the most important economic indicators, and an unexpected reading can have a  significant impact on the movement of GBP/USD. The indicator posted a slight gain of 1.2 thousand in August, surprising the markets which had anticipated a reading of -5.1 thousand. The estimate for the September reading stands at -2.3 thousand. The unemployment rate is expected to remain at 5.5%.

* All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.5184 and  quickly touched  a  low of 1.5135.  The pair then reversed directions,  climbing to a  high of 1.5383,  as  it tested  resistance at 1.5341  (discussed last week).  The pair closed the week at 1.5287.

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

Technical lines from top to bottom

We start with resistance at 1.5590.

1.5485 was a cap in the first half of September.

1.5341  was tested as the pound flexed some muscle.

1.5269  has switched to a support level. It is a weak line and could see further action early in the week.

1.5163 has some breathing room as the pound trades at higher levels.

1.5026 has provided support since April. It is protecting the symbolic line of 1.50.

1.4856 is the  final  support level for now.

I am  bearish on GBP/USD

Despite the Fed remaining on the sidelines again last week, monetary divergence still favors the US dollar and is weighing on the pound. The UK economy is not doing badly, but investor jitters over a global slowdown and limping Eurozone could spell trouble for the pound.

In the latest podcast we explain how no news is bad news for the USD and more:

Follow us on Sticher or on iTunes

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 NZD/USD forecast.
• For the Australian dollar (Aussie), check out the AUD to USD forecast.
• For the Canadian dollar  (loonie), check out the USD to CAD  forecast.