GBP/USD Outlook February 18-22

The British pound had a miserable week, as GBP/USD, lost almost 300 points. The pair closed at 1.5515. This week’s major events include Claimant Count Change  and MPC Meeting Minutes. Here is an outlook of the events and an updated technical analysis for GBP/USD.

The pound lost ground after the Bank of England released a pessimistic Inflation Report, which stated that growth will continue to be weak, and inflation will be above the central bank’s target of 2.0%  until 2015. The week ended on a dismal note, as Retail Sales declined by 0.6%, surprising the markets, which had anticipated a 0.5% gain.

Updates: Rightmove HPI climbed 2.8%, a four-month high. We could see some activity from GBP/USD on Wednesday, as the UK releases key employment data and the MPC Meeting Minutes. The pound remains under pressure, as GBP/USD was trading at 1.5467.  Claimant Count Change looked very sharp, declining by 12.5 thousand claims. The estimate stood at -5.3K.  The  Unemployment Rate  edged higher, from 7.7% to 7.8%. The minutes from the MPC indicated that Governor Mervyn King and two other members voted to increase QE to 400 billion pounds. Although the majority voted to maintain the current level of 375 billion, this is an indication that the BOE could take action in the near future. The MPC voted 9-0 to maintain the current interest rate levels of 0.50%. The Average Earnings Index climbed 1.4%, matching the forecast. The pound has moved higher, as GBP/USD was trading at 1.5267.

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

1. Rightmove HPI: Monday, 00:01. The housing inflation indicator  has looked weak  recently,  but  managed to post a small gain in last month’s reading after  two sharp declines. Will the index manage to remain in positive territory in the upcoming reading?
2. Claimant Count Change: Wednesday, 9:30. This key employment indicator has posted back-to-back declines, indicating some improvement in the UK employment picture. The markets are expecting another decline in February. The Unemployment Rate, which dipped down to 7.7% in Janauary, is expected to remain unchanged.
3. MPC Meeting Minutes: Wednesday, 9:30. This release follows shortly after the BOE’s decision on the interest rate and QE, and provides the breakdown of the vote by the nine members of the Monetary Policy Committee. Analysts are interested to know if the MPC votes were unanimous, or were there dissenting opinions as well.
4. Public Sector Net Borrowing: Thursday, 9:30. This indicator has posted fairly high borrowing levels in recent releases, disappointing the markets. However, the estimate for February is a surplus of 11.3 billion pounds. If the indicator can meet or beat this rosy estimate, we could see the pound show some improvement.
5. 10-year Bond Auction: Thursday, Tentative. The British 10-year bond yields have been fairly steady, and as such, are not expected to have much impact on GBP/USD. The previous release posted an average yield of 1.90%, and no significant change is anticipated in the upcoming release.
6. CBI Industrial Order Expectations: Thursday, 11:00. This manufacturing indicator has not been in positive territory, indicating ongoing pessimism by surveyed manufacturers. The markets are expecting a slight improvement in the February release, to 16 points.

GBP/USD Technical Analysis

GBP/USD opened the week at 1.5700. The pair  reached a high of  1.5810, but  then took a tumble, as it fell  all the way to  1.5461.  The pair closed the week at 1.5515, just below the support level of 1.5515 (discussed last week).

Technical lines from top to bottom:

With the pound dropping sharply, we  begin  from  lower levels. There is resistance at  1.6122. This line has remained intact since January, when the pound began a downward spiral from which it is yet to recover. Next, there is resistance at 1.6060. This is followed by 1.5992, just below the psychologically significant number of 1.60.

Below, 1.5930 is providing resistance. This is followed by 1.5850. The line of 1.5750 has seen a lot of activity recently, and is  currently in a resistance role. This is followed by  resistance at 1.5648. This line has strengthened as the pair trades at lower levels.

GBP/USD is receiving support at 1.5484.  This line  was tested  at the end of the week,  but remains intact.  Moving lower, we encounter support at 1.5406, which has held firm since July 2012.  Below, there is support at 1.5361, which has not been tested since last June. The pound started a rally at that time, which lasted until last September. Next, there is support at 1.5282. This is followed by 1.5189, which has remained in place since July 2010. The final line for now is 1.5010, which is protecting the all-important 1.50 level.

I remain bearish on GBP/USD.

The pound has proved no match for the US dollar in 2013, and has shed over seven cents since early January. The UK economy continues to stumble, and most economic indicators point to ongoing weakness, with no relief in sight. The pair may not repeat last week’s sharp slide, but the dollar could continue to post gains against the British 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.