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The pound  enjoyed another good week, climbing close to two cents  against the US dollar. GBP/USD closed at 1.5737. This week’s major events include  CPI and Retail Sales.  Here is an outlook of the events and an updated technical analysis for GBP/USD.

Both UK and US numbers were a mix last week. In the UK, Manufacturing Production missed the estimate but unemployment figures dropped nicely. US retail sales and unemployment numbers were positive, but consumer confidence fell below expectations. The pound took advantage of broad dollar weakness and posted strong gains, as the British currency pushed above the 1.57 line, its highest level since February.

Updates:

  • A mild hawkish change? 4 scenarios for the Fed decision  – FOMC preview
  • Cable is struggling to maintain the 1.57 handle.  Rightmove HPI rose by 1.2%, less than the previous month.
  • British inflation numbers matched the estimates, for the most part. CPI, the key inflation indicator, came at 2.7%,  edging out the estimate of 2.6%. PPI was the only disappointment, posting a third straight decline, as it dropped 0.3%. The estimate stood at 0.1%.
  • The pound has dropped sharply, as GBP/USD crashed below the 1.56 line.
  • The BOE will release the MPC Meeting Minutes on Wednesday.
  • The G8 wrapped up a meeting in Northern Ireland, and the leaders announced that negotiations on a EU-US free trade pact would commence shortly.
  • There was no change in the voting breakdown for the interest rate and asset purchase decisions. The  vote to maintain interest rates was 9-0, while the vote on asset purchases was 6-3, with outgoing Governor Mervyn King and two other policymakers voting to increase QE to GBP $400 billion.
  • BOE Governor Mervyn King will speak in London.
  • GBP/USD is trading in the mid-1.55 range.
  • The Fed said that downside risk have diminished –  the US dollar rises across the board, and GBP/USD falls under 1.55.
  • UK Retail Sales rebounded nicely, jumping 2.1%. This easily beat the estimate of 0.8%.
  • CBI Industrial Orders remains bogged down, posting a reading of -18 points.
  • BOE Executive Director Paul Fisher testifies before the Treasury Select Committee in London.
  • Public Sector Net Borrowing will be released on Friday. The markets are braced for a large increase in the deficit.
  • The pound has stabilized after sharp losses against the US dollar. GBP/USD was trading in the high-1.54 range.
  • Public Sector Borrowing posted a larger deficit than the previous release. The indicator came in at GBP 10.5 billion, easily beating the estimate of GBP 12.7 billion.
  • The pound has stabilized after sharp drops on Wednesday. GBP/USD was trading in the high-1.54 range, after testing the 1.55 level.

GBP/USD graph with support and resistance lines on it. Click to enlarge:   GBP USD Forecast June 17-21

  1. Rightmove HPI: Sunday, 23:01. This housing inflation indicator provides a snapshot of activity in the UK housing sector. The index has been quite steady, posting gains of 2.1% in the past two releases.
  2. CPI: Tuesday, 8:30. CPI is considered the most important inflation indicator, and is used by the BOE to set the inflation target. After  two straight readings with gains of 2.8%, the index  dropped to 2.4% in  the previous reading. The estimate  for  June release  stands at 2.6%.
  3. PPI Input: Tuesday, 8:30. This inflation index has been quite volatile, making accurate estimates a tricky task. The May release posted a sharp drop of 2.3%. The markets are expecting a turnaround for the June  release, with an estimate of a modest gain of 0.1%.
  4. RPI: Tuesday, 8:30. RPI is another important measure of consumer inflation, but also includes house costs, unlike CPI. The index dropped to 2.9% in the previous reading, the first time it fell below the 3% level since October 2012. The estimate for the upcoming reading stands at 3.1%.
  5. Inflation Report Hearings: Tuesday, 9:00. The BOE Governor and several MPC members will testify before the Parliament Treasury Committee on inflation and economic conditions in the UK. The hearings can affect the movement of GBP/USD.
  6. BOE MPC Meeting Minutes: Wednesday, 8:30. The minutes provide a detailed record of the  most recent Monetary Policy Committee meeting.  Analysts are especially interested in the breakdown of the vote on the interest rate and asset purchase decisions, and an unexpected voting result can cause market volatility.
  7. Retail Sales: Thursday, 8:30. Retail Sales is one of the most important consumer indicators, and an unexpected reading can impact on the direction of GBP/USD. The indicator has not looked sharp lately, posting declines in four of the past five releases, including a 1.3% drop in the previous reading. The markets are expecting a rebound in June, with an estimate of a 0.8% gain.
  8. CBI Industrial Order Expectations: Thursday, 10:00. This manufacturing indicator remains mired deep in negative territory. This points to ongoing weakness in the UK manufacturing sector. The estimate for the June reading stands at -15 points, which would be an improvement from the previous reading of -20 points.
  9. Public Sector Net Borrowing: Friday, 8:30. Public Sector Net Borrowing has not produced a surplus since the February reading. The May release posted a sharply lower deficit of 8.0 billion pounds, but the markets are expecting a weak release for June, with an estimate of a deficit of 13.5 billion pounds.

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

GBP/USD Technical Analysis

GBP/USD opened the week at 1.5525. The pair  dipped below the 1.55 line, touching a low of 1.5495 as the  support line of  1.5484 (discussed last week) held firm.  It was all uphill from there, as GBP/USD climbed sharply, reaching a high of 1.5737. The pair closed the week just above the 1.57 level, at 1.5704.

Technical lines from top to bottom:

We  begin with strong resistance at 1.6170. GBP/USD broke through this line back in January, as the pair went on a very sharp descent which saw it drop below the 1.50 level.   The next line of resistance is at 1.6081.

This is followed by the round number of 1.60, which has held firm since mid-January. Below is 1.5894, protecting the 1.59 level. 1.5804 continues to provide strong resistance. This line has held firm since February.

1.5648 has reverted to a support role after GBP/USD pushed higher. Next is 1.5550, which has strengthened as the pair trades above the 1.57 line.  1.5484 continues to provide support for the pair.

Below, 1.5416 saw action in early June in a resistance role, and has reverted to support as  GBP/USD moves upwards.  This is followed by 1.5258, which  has held firm since late May, when the pound began its current impressive rally.

The final support line for now is  1.5146, which also has remained in place since late May and is a strong support level.

I  am  neutral  on GBP/USD.

The pound has been on fire, gaining about seven cents against the greenback since late May. However,  this  rally is more due to  dollar weakness rather than  any new-found strength in the  British economy. Key US releases were pointed in the right direction last week until a disappointing consumer confidence reading ended the week on a sour note. The pound’s fortune this week could depend on UK Retail Sales and CPI, both of which are market-movers.

Further reading: