GBP/USD Outlook August 12-16

GBP/USD  showed some volatility during the week, with sharp movements in both directions. The pair gained about 150 points on the week, closing just above the 1.55 level.This week’s market-movers include CPI, Claimant Count Change and Retail Sales. Here is an outlook of the events and an updated technical analysis for GBP/USD.

The UK  posted some strong releases this week, led by Services PMI and Manufacturing Production. The US also had some good economic releases, led by ISM Non-Manufacturing PMI and Trade Balance.

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

1. RICS House Price Balance: Monday, 23:01. This housing inflation index increased sharply last month, coming in at 21%. This points to increased activity in the housing sector. The markets are expecting another strong gain in the upcoming release, with a forecast of 25%.
2. CPI: Tuesday, 8:30. CPI is considered the most important inflation indicator. The index rose to 2.9% last month, its largest gain in over a year. The markets are expecting another strong gain of 2.8% in the August release.
3. PPI Input: Tuesday, 8:30. Producer Price Index measures the change in  the price of goods and raw materials purchased by manufacturers. The July release came in at 0.2%, the indicator’s  first gain after three straight declines. The markets are expecting a strong reading in August, with an estimate of 1.2%.
4. RPI: Tuesday, 8:30. Retail Price Index is an important consumer inflation indicator and includes housing costs, unlike CPI. RPI has been fairly steady and came in at 3.3% last month, matching the forecast. The estimate for August stands at 3.1%.
5. Claimant Count Change: Wednesday, 8:30.  This key employment indicator has posted declines throughout 2013, and the July release was very sharp, with a decline of -21.2 thousand. Another strong decline is expected in the upcoming reading, with a forecast of -14.3 thousand. The Employment Rate has been hovering at 7.8% for the past three readings and no change is expected in the August release.
6. MPC Asset Purchase Facility Votes: Wednesday, 8:30. This key indicator provides a breakdown on the vote of the previous bond-buying program by the BOE. The previous vote was somewhat of a surprise, as the vote to maintain the current level of 375 billion pounds was unanimous, in contrast to previous votes which were split.
7. MPC  Official  Bank  Rate  Votes: Wednesday, 8:30. Previous votes on the key interest rate have unanimously maintained the  current level of 0.5%  and this is expected to be the case of the most recent vote.
8. Average Earnings Index: Wednesday, 8:30. Average Earnings is an important consumer inflation indicator. The indicator has been steadily rising and climbed to 1.7% in July, surpassing the  estimate of 1.4%. The markets are expecting the upward trend to continue in August, with the estimate standing at 2.1%.
9. Retail Sales: Thursday, 8:30. Retail Sales is the most important gauge of consume spending, making it a market-mover  which is closely watched by the markets. This key indicator looked weak last month, with a  weak gain of just 0.2%. The markets are expecting a much better reading this time around, with an estimate of 0.7%.

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

GBP/USD Technical Analysis

GBP/USD opened the week at 1.5354. The pair  dropped to a low of 1.5207, as support at 1.5197 (discussed last week) remained in place. The pair then rebounded sharply,  climbing all the way to  a high of 1.5574.  GBP/USD  closed  the week  at 1.5507.

Technical lines from top to bottom:

With GBP posting sharp gains last week, we start at higher ground:

1.6154 was last tested in January. This line marked the high point  as the  GBP/USD went on a sharp  slide which saw the pound drop below 1.49.

1.5962 saw  a lot of activity in February and March 2012 and has stayed in place since mid-January.

1.5832 was busy in late January and has remained in place as a resistance line  since February. 1.5752 was last breached in June, marking the peak of a rally by the  pound which started in May.

1.5648 saw a lot of activity in June and continues to provide strong resistance. 1.5550  saw action in mid-June, as  GBP/USD  pushed past and climbed as high as the mid-1.5750 range.

1.5484  was breached in June, as the pound went on  a sharp skid that saw it drop below the 1.49 line. 1.5350 was  breached during the week but remains in place as strong support.

1.5258 has some breathing room as GBP/USD trades at higher levels.

1.5196 is the next line of support. This line held as the pound lost ground early in the week.

1.5110 was busy in July but has had a quiet August as the pair has  climbed to higher levels. 1.5000 is a critical  support level. It  has remained in place since early July.

1.4897 is the final support line for now. It saw action early in July, and was breached when  the pound  began its present rally, which hit a high of 1.5574 this week.

I  am neutral on GBP/USD.

British data has shown some improvement, led by PMIs, which continue to  move higher. In the US, the economy is  moving along nicely, although we continue to see  mixed numbers. Any improvement in US employment numbers will likely increase speculation about QE tapering  and such talk could boost the  US dollar.

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.