GBP/USD Outlook April 1-5

The British pound  was down slightly  against the dollar last week, as  GBP/USD  closed  just above the 1.52 line, at 1.5201.  This week could be eventful, as the  highlights include PMI numbers and the Official Bank Rate. Here is an outlook of the events and an updated technical analysis for GBP/USD.

Last week saw disappointing data out of both the US and the UK. The UK Current Account Deficit widened, while the US had a particularly bad week, with poor numbers in a wide range of sectors, including housing and employment. GBP/USD did post a drop during the week, but managed to recover by week’s end.

Updates: Manufacturing PMI moved higher, from 47.9 points to 48.3. However, the key indicator missed the estimate of 48.9 points. Net Lending to Individuals came in at 1.5 billion pounds, well able the forecast of 0.9 billion pounds. M4 Money Supply declined 0.5%, disappointing the markets which had anticipated at 1.1% gain. Mortgage Approvals dropped to 52 thousand, a five-month low. The estimate stood at 54 thousand. BRC Shop Price Index will be released later on Tuesday. The pound has dropped sharply, as GBP/USD was trading at 1.5122. BRC Shop Price Index gained 1.4%. Construction PMI rose slightly to 47.2 points, but missed the estimate of 47.7. The BOE released its quarterly Credit Conditions Survey. The report found a sharp drop in the amount of credit taken by small businesses, due to low optimism about the UK economy. Housing Equity Withdrawal was weak, posting a decline of 8.6 billion pounds. The estimate stood at -7.4 billion. Services PMI was higher, hitting 52.4 points. This beat the forecast of 51.4. There were no surprises from the BOE on Thursday. The BOE maintained interest rates at 0.50%, and Asset Purchases at 375 billion. The pound is struggling, as GBP/USD tests the 1.51 line. The pair was trading at 1.5108.

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

1. Halifax HPI: Tuesday, 2nd-4th. This house price index provides a snapshot of activity in the UK housing sector. The index rose 0.5% in the March reading, but a lower gain is expected in the April release. The estimate calls for a weak 0.2% rise.
2. Manufacturing PMI: Tuesday, 9:30. Analysts closely monitor PMI data, as purchasing managers provide relevant and up-to-date views of their respective sector of the economy. Manufacturing PMI has shown some improvement, with two readings in 2013 above the 50-point level, which points to expansion. The estimate for the April release stands at 48.9 points, and the markets would be delighted to see the index cross back above the 50 line.
3. Net Lending to Individuals: Tuesday, 9:30. An increase in the providing of credit indicates that lenders are more comfortable lending and that consumers  want to  borrow and spend, which is critical to economic growth. The March reading was a disappointment, as the indicator came in at 0.6 billion pounds, a sharp drop from the month before. The markets are expecting an improvement in the April reading, with a forecast of 0.9 billion pounds.
4. BRC Shop Price Index: Tuesday, 00:01. This index measures consumer inflation, but is limited to retail stores that belong to the BRC chain. The markets are expecting a gain of 1.0% in the upcoming reading.
5. Construction PMI: Wednesday, 9:30. The UK construction sector  is  not looking all that good,  with releases below the 50-point level since November. Little change is expected in the April reading, with an estimate of 47.7 points.
6. BOE Credit Conditions Survey: Wednesday, 9:30. This BOE survey is released every quarter, and includes data on lending conditions in the UK. Analysts are interested in the comfort level of lenders as well as consumers, as an increase in borrowing indicates stronger consumer confidence and more spending, which is crucial for economic growth.
7. Services PMI: Thursday, 9:30. With the exception of the January 2013 release, recent readings have been above the 50-point level, indicating expansion in the UK services sector. The estimate for the April release stands at 51.4 points, slightly below the March reading.
8. Asset Purchase Facility: Thursday, 12:00. This indicator has garnered some attention from the markets as  recent  votes by the nine-members of the MPC have been split, with a  minority voting to  increase QE.  However, no change is anticipated to the current QE level of 375 billion pounds per month.
9. Official Bank Rate: Thursday, 12:00. The markets will be closely watching as the BOE sets the benchmark interest rate this week. No change is expected to the current level of 0.50%, which has remained steady since 2009.
10. MPC Member Spencer Dale Speaks: Friday, 9:00. Dale is the Chief Economist at the BOE, and he will be speaking at an economic conference in London.  A  speech that is more hawkish than expected is bullish for the British pound.

GBP/USD Technical Analysis

GBP/USD opened the week at 1.5241. The pair touched a high of 1.5258, but then dropped sharply, dipping below the 1.51 line, to a low of 1.5093. The pair then bounced higher, closing the week at 1.5201, as the support level of 1.5189 (discussed last week) remained intact.

Technical lines from top to bottom:

We  start with resistance at 1.5750. This line saw a lot of activity in the first half of February, before the pound began a dive which lasted until mid-March. This is followed by resistance at 1.5648. Below, there is resistance at 1.5567. This   line has remained in place since mid-February. This is followed by resistance at 1.5484. Next, there is resistance at 1.5406. We then encounter resistance at 1.5258, which has not been tested since late February.

GBP/USD continues to receive support at 1.5189.  This line was briefly breached as the pair sagged during the week, and is a weak line. It could see further activity early  this week.  Next, there is support at 1.5061. This is followed by 1.5010, protecting the all important 1.50 level. We next encounter support at 1.4896, just below the round number of 1.49. Below is 1.4765, which has remained intact since June 2010. The finals support level for now is at 1.4665.

I remain bearish on GBP/USD.

After  plunging into 1.48 territory in mid-March, the pound  has managed to turn things around  over  the past two weeks, as it trades  at 1.52.  However, the UK economy continues to look sluggish. The US had a particularly disappointing week,  which gave the pound some breathing room. If  US releases do bounce  back this week,  the UK will have to post some solid PMI numbers if  the pound hopes to hold its own  against the US currency.

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