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A very busy week expects cable traders: inflation, employment and retail sales are the highlights. Here’s an outlook for the major events in Britain and an updated technical analysis for GBP/USD.

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

british pound forecast

The bigger deficit in the trade balance was one of the weights on the Pound, and Friday’s Manufacturing was another blow, as the rate decision didn’t supply any news. This week has a major indicator every day. Let’s start:

  1. Nationwide Consumer Confidence: Publication time unknown at the moment, delayed from last week. After steadily climbing to 81, this indicator dropped and now stands on 74 points. This is the first survey for the new government and also the first one after the escalation of the European troubles. Economists expected a rise to 78 points, but given the worries, a drop under 70 won’t be very surprising.
  2. BOE Quarterly Bulletin: Published on Sunday at 23:00 GMT (midnight UK). The Bank of England releases its opinions on the current economic developments and thoughts about the future. Any concerns about the government deficit that will be cited by the media could hurt the Pound.
  3. Adam Posen talks: Starts speaking on Monday at 21:00 GMT. This influential member of the MPC will speak about inflation in a conference in New York, about 12 hours before the release of inflation data. It will be interesting to hear what he thinks about inflation – does he disregard it, or is he worried and wants a rate hike?
  4. RICS House Price Balance: Published on Monday at 23:00 GMT. The Royal Institution of Chartered Surveyors publishes the balance between areas that see a rise in house prices and the ones that see a drop. The positive balance has squeezed in recent months, but recovered to 17% last time. A small drop to 16% is expected this time.
  5. CPI: Published on Tuesday at 8:30 GMT. Inflation is becoming a problem in Britain. The government’s 1-3% target wasn’t met in the past 4 months. Mervyn King dismissed it, and blamed the rise on fuel prices, but the new Prime Minister, David Cameron, is worried and called the central bank to tackle it – raise the interest rate. Any result will rock the Pound. CPI is expected to edge down from 3.7% to 3.5%, Core CPI is predicted to tick down from 3.1% to 3% and the forecast for the RPI (Retail Price Index), is a drop from 5.3% to 5%.
  6. Inflation Report Hearings: Begins on Tuesday at 9:00 GMT. Just 30 minutes after the fresh inflation data is released, Mervyn King and a few of his associates will appear before the new Treasury Committee in parliament and will testify about inflation, the economic situation and the budget which the Cameron wants to cut. During the many hours of debate, the quotes that they’ll release will rock the currency.
  7. Employment data: Published on Wednesday at 8:30 GMT. The number of unemployed people, as seen in the Claimant Count Change,  dropped significantly in the past three months, exceeding  expectations time after time. Another drop of 25,300 is expected now, similar to last month’s number. While this is good for the Pound, the complementary figure, unemployment rate, which is a lagging figure, rose to 8% and isn’t expected to move from there – this figure is quoted by the media and has a strong impact on politicians. Also note the Average Earnings Index, which combine inflation and employment – they’re expected to be Pound-positive, rising by 4.4%, the biggest rise in many years.
  8. Mervyn King talks: Starts speaking on Wednesday at 21:45 GMT. Just a few hours after the appearance in parliament, King will have another opportunity to speak his mind, attending an event at the Mansion House in London. This can supply volatility for the Pound, in a usually quiet hour in the markets.
  9. Retail Sales: Published on Thursday at 8:30 GMT. This major consumer related figure rose at low rates in the past two months, similar to the weak growth of the economy. Yet again, consumers are expected to show more caution this time, with a minor rise of 0.1%. A drop will hurt the Pound.
  10. CBI Industrial Order Expectations: Published on Thursday at 10:00 GMT. The Confederation of British Industry paints a more pessimistic picture of the economy. This figure has been negative, meaning lower order volume expected for the past two years, but at least there’s been some improvement. A rise from -18 to -15 is expected now.
  11. Public Sector Net Borrowing: Published on Friday at 8:30 GMT.  The public sector has been lending quite high in recent months, causing worries at home and overseas. From 10 billion pounds last month, this number is expected to leap up to 18 billion this time.
  12. Mortgage Approvals: Published on Friday at 8:30 GMT. The is the official and initial release approvals of this important housing sector figure. 50,000 approvals were reported last month, and this is expected to be followed by a small drop to 49,000. All in all, this figure has been rather steady.

GBP/USD Technical Analysis

The Pound began the week with a dip below 1.44, but then gradually climbed and made another failed attempt to break above 1.4780. This bounce was painful, and the pair was supported only at 1.45, a new line (didn’t appear last week).

The current range for the pair is between 1.45 and 1.4610, which provides minor resistance. Higher, the 1.4780 continues to provide very strong resistance. It worked as a distinctive support line a few months ago.

Higher, 1.5050 is the next line of resistance, working as a resistance line in May, and it’s followed by 1.5130, which served as a strong support line when the pair was trading higher.

Below 1.45, the next minor line of support is at 1.44, which was a support line in the past as well. Lower, 1.4230, which was the year-to-date low, already provides strong support.

Further down the road, 1.4130 is the next line of support, and it’s followed by 1.38 and the multi-decade low of 1.35, but these are still far at the moment.

I remain neutral on GBP/USD.

The weak growth with the new government’s austerity measures definitely hurt the Pound, but the rising inflation could turn into an early rate hike. A lot depends on the CPI.

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