GBP/USD was down this week, falling almost 200 pips, before recovering somewhat to end the week at the 1.53 level. The upcoming week is a busy one, with seven releases. Here is an outlook for the upcoming events, and an updated technical analysis for GBP/USD.
Updates: Cable managed to stabilize above 1.53, ignoring another dive in home prices, by 0.8% according to Rightmove. Inflation is falling in Britain – it dropped to a level of 4.2% (annualized) as expected. BOE Governor King said that the fact that the UK managed to get a negative interest rate on 35 year bonds is “astonishing”. Money is cheap. GBP/USD is now on higher ground, reaching 1.54. British unemployment is on the rise, reaching 8.4%. Together with lower inflation, chances are higher for another round of QE. Despite the higher chances of pound printing, European optimism sent the dollar lower, also against the US dollar.
- Rightmove HPI: Monday, 00:01. The Housing Price Index provides analysts with their first look at housing inflation in the UK. The indicator has dropped for three consecutive m0nths, and is now in negative territory. The monitor is a good indication of the pessimism gripping the UK consumer – little spending, and even less confidence in the economy. This is causing a negative ripple effect which is being felt throughout the economy.
Nationwide Consumer Confidence: Publication time unknown at the moment. Since June, this important indicator has recorded a drop in every reading except one. This confirms that consumer activity continues to be weak. The markets are predicting little change this month.
- CPI: Tuesday, 09:30. This is the key inflation indicator, so traders should take note. The market forecasts are generally quite close to the actual readings. The January forecast calls for lower inflation, from 4.8% down to 4.2%. RPI has fallen for the past three months, and the markets again are calling for a further drop, from 5.2% to 4.7%.
BOE Gov King Speaks: Tuesday, 10:00. Volatility in the markets is not uncommon following a speech by the head of the central bank. Analysts and traders scrutinize the Governor’s remarks for any hint as to future monetary policy and interest rate decisions.
- CB Leading Index: Tuesday, 10:00. This leading composite index has been in negative territory since September, indicating weak economic activity. The market predictions are usually quite close to the actual readings, so this indicator is rarely a market-mover.
- Employment Data: Wednesday, 9:30. The Claimant Count Change indicator has fallen over the past four readings. The good news for the pound is that the readings have been lower than the forecast for each of these readings. The market is calling for a higher reading this month. Will this month’s reading again beat the market forecast? The Unemployment Rate remains stubbornly high at 8.3%, severely hampering the fragile UK economy. The markets predict no change in the rate this month.
- Retail Sales: Friday, 9:30. The indicator dropped into negative territory last month, but the markets are predicting a nice rise to 0.6% for the January reading. A strong reading would certainly be welcome news for the consumer sector and provide some much-needed positive economic data.
* All times are GMT.
GBP/USD Technical Analysis
Pound/dollar started the week at 1.5417. It reached a high of 1.5469, which is as close as it came to the 1.57 resistance line (discussed last week). The pound then lost ground, dropping sharply to 1.5234, before recovering to close the week at 1.5301.
Technical levels from top to bottom
We begin with the level of 1.59, which provided strong support in November, and is now acting as a major resistance line. 1.5815 has proven to be a strong line of resistance since mid-November.
The round number of 1.57 is providing weak resistance, and was breached several times in December. 1.5629 is providing strong resistance, as is 1.5525. The round number of 1.55 was tested this week, and could be breached on a sustained upward swing by the pair. Below, 1.5360 is a weak support level. This is followed by 1.5280, which was breached this week. There is a strong support line at the 1.52 level, although this line could be tested further if the pair falls. There is strong support at 1.5120, with the final line for now the psychologically important level of 1.50.
I remain bearish on GBP/USD.
Manufacturing and industrial figures were weak, although the retail sector showed some surprising strength in December. The markets clearly have a more favorable view of the US economy compared to the UK, so look for the dollar to continue to look strong.
- 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.
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- For the Australian dollar (Aussie), check out the AUD to USD forecast.
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- For the Swiss Franc, see the USD/CHF forecast.