GBP/USD Forecast Sep. 22-26

The British pound  displayed some late-week volatility, as GBP/USD posted sharp gains, albeit temporarily, as the  pair was  almost  unchanged at the end  of  the week.  GBP/USD closed  the week at  1.6284. There are only 4 events in the upcoming week, but volatility could certainly remain  elevated.  

The pound took traders and investors on a rollercoaster ride late in the week, courtesy of the Scottish referendum, which ended with a decisive “no thanks”  to independence from the United Kingdom. In the US, unemployment claims  dropped sharply  and the Fed hinted that once rates are raised, subsequent  hikes could take place more quickly than expected. Both central banks are about to tighten, but  which currency will have the upper hand?

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

1. BBA Mortgage Approvals: Tuesday, 8:30. This housing indicator  is  an important gauge of the  strength of  the housing  sector.  The indicator has been fairly steady, and eased slightly to 42.8 thousand last month, short of the estimate of 44.2 thousand. More of the same is expected, with an estimate of 42.9 thousand.
2. Public Sector Net Borrowing: Tuesday, 8:30. The indicator posted a surplus in the most recent reading for the first time since January. The indicator came in at -1.1 billion pounds, missing the estimate of -1.9 billion (a negative number indicates a surplus). The markets are expecting  a  large deficit in the upcoming release, with  the estimate standing at +10.3 billion pounds.
3. Nationwide HPI:  Thursday, 25th-30th. This housing inflation indicator helps track the level of activity in the housing sector. The index jumped 0.8% last month, easily beating the estimate of 0.1%.
4. CBI Realized Sales:  Thursday, 10:00. The indicator shot up 37 points last month, its  best showing since January. This crushed the estimate of 27 points. Another strong reading is expected in the upcoming release, with an estimate of 34 points.

* All times are GMT

GBP/USD Technical Analysis

GBP/USD  opened the week at 1.6258 and dropped to a low of 1.6162. The pair then rebounded and  touched a high  of 1.6542 on Friday. GBP/USD was unable to hold onto these gains and closed the week  at 1.6284, as support  held at 1.6250  (discussed last week).

Live chart of GBP/USD:

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Technical  lines from top to bottom

We start off with resistance at 1.6740. This line  capped the pair on a recovery attempt in August and is currently high resistance.

1.6660 was a swing low in April and also in August.

1.6615 is the top of the current range after capping it in August. The bottom of the range is at 1.6535.

Below, we have 1.6465, which was the bottom in March. Further below, the round number of 1.64 is providing resistance.

1.6310, the next resistance line, was a cushion during  January. It is a weak line and could face pressure early in the week.

This is followed by support at 1.6250, the low seen in February. The line was breached but recovered and starts off the weak as an immediate support level.

1.6131 has remained intact since August 2011. At that time, the dollar posted an impressive rally which as GDP/USD dropped close to the 1.53 line.

1.6006  has held firm since October, and stands just above the psychologically important 1.60 level.

1.5909 was last tested in  late October.

The final support line for now is 1.5746, which  was important support in  January.

I am bearish  on GBP/USD.

With the Scottish referendum behind us, the markets can again focus on economic data, and the US dollar has the advantage as the US economy has been outperforming that of the UK. Traders should keep a close eye on this week’s unemployment claims and retail sales data. If the US numbers are strong, the dollar could continue to have its way with the pound.

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 GBP/USD (cable), look into the British Pound forecast.
• For the Australian dollar (Aussie), check out the AUD to USD forecast.
• USD/CAD (loonie), check out the Canadian dollar.