GBP/USD Outlook January 20-24

GBP/USD  reversed directions last week,  losing close to one cent. The pair closed  slightly above the 1.64 line.  This week’s highlight is Claimant Count Change.  Here is an outlook for the main events moving the pound, and an updated technical analysis for GBP/USD.

There was good news from both US and UK releases. Unemployment Claims remained at low levels, and Core Retail Sales and the Philly Fed Manufacturing easily beat their estimates. In the UK, CPI hit the BOE target of 2.0% and Retail Sales sparkled, hitting a nine-year high.

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

1. Rightmove  HPI:  Monday, 00:01. This housing inflation indicator continues to show declines, pointing to weakness in housing prices. The index posted a  sharp drop  of -1.9% last month, and the markets are hoping for better news in the upcoming release.
2. CBI Industrial Order  Expectations: Tuesday, 11:00. This manufacturing indicator has looked solid in recent releases, and hit 12 points last month, matching the forecast. The markets are not expecting much change in the December reading.
3. Claimant Count Change: Wednesday, 9:30. This is the highlight of the week, and the indicator could have a major impact on the direction of GBP/USD. The indicator has been posting sharp declines, as the employment situation improves as the UK economy picks up. Another strong drop is forecast, with a December estimate of -32.3K. The Unemployment Rate is expected to edge lower to 7.3%, down from 7.4% last month.
4. MPC Asset Purchase Facility Votes: Wednesday, 9:30. The markets are expecting another unanimous, 9-0 vote for the most recent QE decision, which kept QE steady at 375 billion pounds.
5. MPC  Official Bank Rate  Votes: Wednesday, 9:30. The voting breakdown could lead to some volatility from the pound if there is an unexpected reading. The markets are anticipating a unanimous, 9-0 breakdown in favor of the most recent decision to maintain the benchmark interest rate at 0.50%.
6. Average Earnings Index: Wednesday, 9:30. This indicator has been moving higher, and the upward trend is expected to  continue, with an estimate of 1.1% for December.
7. Public Sector Net Borrowing: Wednesday, 9:30.Public Sector Net Borrowing was a disappointment last month, as the debt ballooned to 14.8 billion pounds, up from 6.4 billion in the previous reading. This surprised the markets, which had expected a debt of just 6.6 billion. The markets are braced for another weak reading, with an estimate of 12.3 billion.
8. External BOE MPC Member Ian McCafferty Speaks: Thursday, 8:30. McCafferty will address a university audience in Nottingham. A speech that is more hawkish than expected is bullish for the pound.
9. BOE Executive Director Paul Fisher Speaks: Thursday, 9:00. Fisher will speak at a financial forum in London. Analysts will be looking for some clues regarding the BOE’s future monetary policy.
10. 10-year Bond Auction:  Thursday, Tentative. The average yield on 10-year bonds has been very steady, and came in at 2.73%  in the  November auction. The indicator is a useful gauge of investor confidence, but is unlikely to affect the movement of GBP/USD.
11. CBI Realized Sales: Thursday, 11:00. The indicator had an outstanding November, jumping to 34 points. This crushed the estimate of 9 points. The markets are expecting another strong reading in December, with the estimate standing at 28 points.
12. BBA Mortgage Approvals: Friday, 9:30. This indicator is an important gauge of activity in the UK housing sector as well as an indicator of consumer spending. The indicator showed improvement in the last few months and the November release came in at 45.0 thousand. Another strong reading is expected for December, with an estimate of 47.2 thousand.

* All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.6494,  and quickly touched a high of 1.6508. The pair  then dropped  sharply, falling to a low of 1.6309,  breaking through support at 1.6343 (discussed last week).  GBP/USD then bounced higher, closing the week  at 1.6412.

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

Technical lines from top to bottom

We  start with resistance at  1.6990, which is protecting the key 1.70 level. This line has remained intact since October 2008.

Next is resistance at 1.6705, which has  held firm since May 2011. This is followed by the round number of 1.6600.

1.6475 continues to be busy and was breached  again week. The line has switched to a resistance role  as we begin the new week.

This is followed by 1.6343, which continues to be the first support line. It has some breathing room as the pair trades at higher levels.

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.

GBP/USD posted modest gains, but the pound’s upward momentum could be slowing down. Additional QE tapering could bolster confidence in the US economy and help the dollar. With the BOE  insisting that it will not raise interest rates, the pound will need some strong data this week to maintain high levels against 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.