GBP/USD Outlook Dec. 17-21

GBP/USD  looked sharp this week, climbing 130 pips, to close at 1.6171. The upcoming week is quite busy, with 12 releases. Highlights include  CPI, Retail Sales, Current Account and Public Sector Net Borrowing. Here is an outlook of the upcoming events, and an updated technical analysis for GBP/USD.

The pound was bolstered by excellent employment numbers, as Claimant Count Change posted a drop, surprising the markets which had expected a gain in unemployment claims. In the US, the key releases   of PPI and Retail Sales were lacklustre, with both falling below the market estimates.

Updates: Rightmove HPI disappointed, dropping 3.3%. The BOE Quarterly Bulletin was released. The report found that bank and corporate funding conditions had improved, but concerns remained over the US fiscal cliff crisis  and long-term prospects for  the Eurozone.  A host of inflation indicators were released on Tuesday. CPI came in at 2.7%, the same as the previous release and a notch higher than the estimate of 2.6%.. PPI Input rose 0.1%, as expected. RPI climbed 3.0%, slightly below the forecast of 3.2%. Core CPI jumped 2.6%, just  below the estimate of 2.7%. HPI rose 1.5%, very close to the forecast of 1.6%. PPI Output dropped 0.2%. The markets had anticipated a gain of 0.2%. MPC Meeting Minutes and CBI  Realized Sales  will be released on Wednesday. GBP/USD is steady, as the pair was trading at 1.6209.

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

1. Rightmove HPI: Monday, 00:01. This important housing inflation index dropped 2.6% in November, its worst showing in 2012. The markets will be hoping for a rebound in the December release.
2. BOE Quarterly Bulletin: Tuesday, 00:01. Analysts will be combing through this BOE release, which discusses the UK central bank’s monetary policy operations and also an analysis of markets trends and conditions. A report which is more hawkish than forecast is bullish for the pound.
3. CPI:  Tuesday, 9:30. This key inflation index has been hovering  close to the mid 2%  level in the second half of 2012. The markets are expecting more of the same in the upcoming release.
4. PPI Input: Tuesday, 9:30. Although this inflation index has shown some volatility, the market forecast have been quite accurate. The estimate for December stands at a negligible increase of 0.1%.
5. RPI: Tuesday, 9:30. This index includes the change in prices in the housing sector, which is not included in the CPI release. The index gained a robust 3.2% last month, and the markets are expecting an identical increase in the December release.
6. MPC Meeting Minutes: Wednesday, 9:30.This report includes a breakdown of the vote of MPC members on the most recent interest rate and QE decisions. The market expectation is that both votes were unanimous. If this turns out not to have been the case, this could have an impact on market sentiment and the movement of GBP/USD.
7. CBI Realized Sales: Wednesday, 11:00. This consumer spending indicator has looked very sharp recently, and hit 33 points in the previous reading. The market forecast is for a lower, but very respectable reading of 26 points.
8. Retail Sales: Thursday, 9:30. Retail Sales was a major disappointment in November, declining by 0.8%. The markets are expecting a strong rebound in the upcoming release, with an estimate of a 0.3% gain.
9. GfK Consumer Confidence: Friday, 00:01. UK consumer confidence has been mired in deep negative territory throughout 2012, which is a serious impediment to a sustained recovery. Another poor release is expected in December.
10. Current Account: Friday, 9:30. Current Account was absolutely awful in November, posting a deficit of 20.8 billion pounds, which was much higher than the estimate. The markets are expecting a lower deficit in the November release, with a forecast of -13.7B.
11. Public Sector Net Borrowing: Friday, 9:30. This indicator has not looked good in recent months, and last month’s deficit was significantly higher than the estimate. The markets are bracing for the deficit to balloon in December, with a forecast of 14.8 billion pounds.
12. Final GDP: Friday, 9:30. GDP is one of the most important releases, and any unexpected readings can affect the movement of GBP/USD. After three consecutive quarters of negative growth, the markets are anticipating a turnaround in December, with an estimate of a healthy 1.0% gain. Will the indicator meet or beat this rosy prediction?

*All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.6035. The pair touched a low of 1.6014, but it was all upwards from there. The pound climbed all the way to 1.6177, easily breaking past resistance at 1.6122 (discussed last week). The pair closed the week at 1.6171.

Technical lines from top to bottom:

With the  GBP/USD  breaking out and posting gains this week, we start at  higher levels. There is resistance at 1.6747, which has not been tested since May. Next, there is resistance at the round number of 1.66. Below, is the line of 1.6475. This line has held firm since August 2011. This is followed by resistance at 1.6343. This line was last breached when the pound dropped sharply in August 2011. We next encounter resistance at 1.6247.

GBP/USD is now receiving support at 1.6122. Next is 1.6060. This line was in a support role last week, but has now reverted to resistance as the pound flexed some muscle. Below, there is support at 1.5992. This line has strengthened as the GBP/USD trades at higher levels. This is followed by 1.5930,which has  provided firm support since late November. Next, there is strong support at 1.5850. This is followed by 1.5750, a support line which has held firm since August. The final support  line  for now is at  1.5648.

I am bullish on GBP/USD.

The pound has  posted an   impressive  rally since  mid-November, gaining over three cents against the US dollar. Will the rally continue? As we approach the end of 2012, the markets are now focused on the looming fiscal cliff crisis. It is likely that some kind of compromise or  stop-gap measure will  be reached on Capitol Hill.  If the fiscal cliff  can be  averted or at least delayed, market sentiment would be positive, and this could bolster the pound at the expense of the greenback.

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.