GBP/USD Outlook Feb. 10-14

GBP/USD  lost ground but posted a late recovery and was  almost unchanged on the week. GBP/USD closed the week at 1.6408.  This week’s highlights is the BOE Inflation Report.  Here is an outlook for the main events moving the pound, and an updated technical analysis for GBP/USD.

Both the US and UK had mixed releases last week.  In the US, Unemployment Claims were solid, but Nonfarm Payrolls slid. PMIs also pointed in both directions. British PMIs  remain at high levels but are having trouble meeting the  market estimates.  Meanwhile,  NIESR GDP posted a solid gain, which is indicative of an improving economy.

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

1. BRC Retail Sales Monitor:  Tuesday, 00:01. This indicator looks at changes in retail sales in the BRC chain of stores. The indicator has been dropping in recent readings and posted a gain of 0.4% in the previous release. The markets will be hoping for a reversal of the downward trend in the January release.
2. CB Leading Index: Wednesday,  10:00. This housing inflation  indicator is an important gauge of activity in the UK housing industry. The index declined by 0.6% last month after a strong gain the month before. The estimate for the January reading stands at 0.4%.
3. BOE Inflation Report: Wednesday, 10:30.  The BOE releases  this report each  quarter.  The indicator could affect the direction  of GBP/USD  since if  the BOE projects that inflation will remain at high levels,  pressure will increase on the BOE to raise interest rates to  cool down the economy. Governor Mark Carney will hold a press conference following the release of the report.
4. RICS House Price Balance: Thursday, 00:01. A slight majority of surveyors continues to report a price increase in their area of operation. The previous release came in at 56%. The estimate for the January reading stands at 59%.
5. 10-year Bond Auction: Thursday, Tentative. The average yield on the 10-year bond auction rose slightly in January, coming in at 2.87%. We have not seen 10-year bonds above 3% since July 2011. Will the yield push above this threshold level this time around?
6. 30-year Bond Auction: Thursday,  Tentative. Bond yields help analysts gauge investor confidence. The average yield on 30-year bonds showed almost no change in January, with a yield of 3.59%.

* All times are GMT

 

GBP/USD Technical Analysis

GBP/USD opened the week at 1.6437  and this was also the high of the week.  The pair  then  dropped to a low of 1.6252  as support held firm at 1.6247 (discussed last week). The pair then rebounded on Friday, closing the week at 1.6408.

Live chart of GBP/USD:

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Technical lines from top to bottom

We  begin with resistance at  1.6990, which is protecting the key 1.70 level. This line has  held firm  since October 2008.

Next, there  is resistance at 1.6705, which  was last tested  in May 2011.   This is followed by the round number of 1.6600, which was briefly breached early in the week, but remains intact.

1.6475 had a quiet week for a change as the pound did not move higher last week.

1.6343 is the first support line. It is not strong and could face pressure if the pound weakens.

1.6247  is providing the pair with strong support.  This was a key resistance line in October and November 2012.

1.6125  is the next support level. This line has held steady since late November.

The round number of 1.60, a key psychological barrier, is providing the pair with strong support.

The final support level  for  now is  1.5893, which last saw action in November.

 

I am  neutral on GBP/USD.

US releases have generally been positive, and the markets  maintained their compose despite a disappointing  Nonfarm Payrolls release. The UK economy continues to expand but may have slowed down a step, and the BOE seems determined not to raise interest rates anytime soon, which would give a boost to 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 the Australian dollar (Aussie), check out the AUD to USD forecast.
• For USD/CAD (loonie), check out the Canadian dollar forecast.