GBP/USD Outlook – April 19-23

After a mostly- positive week, Goldman Sachs sent the Pound back to the critical technical line. The upcoming week is very busy – inflation, employment and GDP figures are all released this week, among other indicators. Here’s an outlook for the British events and an updated technical analysis for GBP/USD.

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

British trade balance was one of the factors that pushed the Pound higher, as the deficit significantly narrowed. This week, bigger events will rock the Pound. Let’s start the review. The technical analysis will follow:

1. Rightmove HPI: Published on Sunday at 23:00 GMT (midnight UK). The earliest report on house prices is published early in the week, but it isn’t considered too accurate. Last month’s rise of 0.1% was significantly weaker than previous months, and could indicate a drop in prices this time.
2. CPI: Published on Tuesday at 8:30 GMT. After breaching the government’s target of 3%, prices have eased, as Mervyn King expected. The inflationary pressures come mostly from the rising price of oil. CPI is predicted to rise by an annual rate of 3.2%, stronger than last month’s 3%. Core CPI that showed a rise of 2.9% is expected to ease to 2.8%. Also note the RPI (Retail price index), that posted 9 months of drops, but turned positive. It’s expected to show a rise of 4.1%.
3. Employment data: Published on Wednesday at 8:30 GMT. The Claimant Count Change is the most important figure, being the earliest report. Last month it was outstanding, showing a drop of 32,300 unemployed people. A smaller drop is predicted this time – 5,700. Britain’s unemployment rate is late figure, relating to the month of February. It’s predicted to remained unchanged at 7.8% for a fourth month in a row. Also note the Average Earnings Index, which rose at a moderate pace of 0.9% last month, and is now expected to rise by 2.5%.
4. MPC Meeting Minutes: Published on Wednesday at 8:30 GMT, and overshadowed by the employment data. This time, the release will probably have a small impact. The last rate decision didn’t bring any news, and the bankers probably didn’t say anything of importance in the last decision before the elections. A surprise is always possible, but big news will probably wait to after the elections.
5. Retail Sales: Published on Thursday at 8:30 GMT. This major consumer related figure was great last month, with a rise of 2.1%, much better than expected, but this came on top of a downwards revision last time, so it’s important to notice these fluctuations. A rise of 0.7% is expected this time.
6. Public Sector Net Borrowing: Published on Thursday at 8:30 GMT,  and overshadowed by retail sales. The big government debt, is weighing on the Pound, especially as its a highly debated issue towards the elections. Government borrowing, or excessive spending if you wish, is expected to double from 12.4 to 24.2 billion pounds, hurting the currency.
7. Mortgage Approvals: Published on Thursday at 8:30 GMT, and overshadowed by retail sales. This is the preliminary release of mortgage approvals, an important indicator of the housing sector which affects the whole economy. After three months of drops, the number of approvals will probably rise from 48K to 51K.
8. CBI Industrial Order Expectations: Published on Thursday at 10:00 GMT. This indicator is based on a survey of 550 manufacturers, and has been negative for quite a while., although improving. Yet another improvement is expected this time – from -37 to -31. The negative score means expectations for lower sales volume.
9. GDP: Published on Friday at 8:30 GMT. The best is kept for last. Britain’s economy grew by 0.4% in Q4 of 2009, according to the final release. This is also thanks to a downwards revision of the data for Q3. The current expectations talk about a similar 0.4% growth rate in the first quarter of 2010. For a change, the consensus of economists is line with those of the NIESR institute. Any result, even if in line with expectations, will rock the Pound.

GBP/USD Technical Analysis

The Pound followed the Euro’s lead and enjoyed the Sunday gap to blow past the 1.5350 line. It then relaxed and tested this line, before going up and bouncing off the 1.5520 resistance line, mentioned in last week’s outlook. Friday’s dollar rally sent it back down to 1.5360, exactly where it was last week.

GBP/USD is now at crossroads, around the 1.5350 line, which has a smaller role now. Looking up, 1.5530 is a strong resistance line – it worked in the past week as a resistance line, and in the past as a support line.

Even higher, 1.5833 provided support before the Pound collapsed, and also halted an attempt to rise. Above, 1.6260 is the next important resistance line – working in both roles in the past.

Looking down below 1.5350, 1.5120 proved as a powerful support line in recent weeks, preventing the Pound from falling 3 times and could provide immediate support now.

Lower, 1.4780 is the year-to-date low, and also worked as a support line in 2009. Beyond this critical line, 1.44 is the next area of support.

I am neutral on GBP/USD.

On one hand, the failure to hold to its gains, the growing uncertainty towards the elections and the new dollar storm on Goldman Sachs weigh on GBP/USD, but on the other hand, the important economic indicators will probably support the pair. It will undoubtedly be an exciting week.

Further reading:

• For a broad view of all the week’s major event in all currencies, read the  forex weekly outlook.
• For the Euro, read the  EUR USD Forecast.
• For the Australian dollar, read the  AUD/USD forecast.
• For USD/CAD, check out the  Canadian dollar forecast.
• For the kiwi, here’s the  NZD/USD forecast.

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