GBP/USD Outlook June 24-28

The US dollar posted strong gains against the major currencies last week, and the pound  was no exception,  as  GBP/USD shed over three cents last week.  The pair closed the week slightly above the 1.54 line, at 1.5416. This week’s major events include  the Inflation Report Hearings and Current Account.  Here is an outlook of the events and an updated technical analysis for GBP/USD.

The UK posted a strong Retail Sales release last week, but this was of little help against the US dollar onslaught. The markets reacted negatively to high British inflation numbers, and the Fed announcement about tapering QE hurt the pound, as the dollar enjoyed broad strength last week against the major currencies.

Updates:

• Governor Mervyn King and other BOE policymakers are testifying in Parliament at the Inflation Report Hearings.
• BBS Mortgage Approvals looked very sharp, rising to 36.1 thousand. The  estimate stood at 33.1 thousand.
• CBI Realized Sales jumped from -11 points to  1 point. This matched the forecast.
• GBP/USD is trading in the mid-1.54 range.
• Another wave of a strengthening dollar sends cable below 1.54. Opinion:  Trading GBP/USD – A Special Relationship
• U.K. Chancellor of the Exchequer George Osborne outlined deep spending cuts, totaling GBP 11.5 billion. The cuts will commence in 2015 and continue until 2018.
• The BOE released its semi-annual Financial Stability Report. The BOE warned that UK banks could face sudden increases in interest rates. The central bank also noted that confidence in the British financial system remains weak.
• Current Account posted a larger deficit of GBP-14.5 billion. This was well above the estimate of GBP-11.9 billion.
• Final GDP rose 0.3%, matching the forecast.
• Revised Business Investment posted its sharpest decline in over a year, dropping 1.9%. The estimate stood at -0.4%.
• GfK  Consumer Confidence will be released later on Thursday.
• GBP/USD continues to drop, and was trading in the mid-1.52 range, its lowest levels since early March.
• Updated technical analysis:  GBP/USD Extends Plunge Below Major Support.
• GBP/USD remains on low ground, under 1.53, at around 1.5240, towards the end of the week, month and quarter. The  Index of Services surprised with a rise of 0.8%, more than expected.
• Opinion:  An election driven GBP will store up big problems later on
• GBP/USD loses 1.52 on a dollar surge due to the end of month/quarter action.

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

1. BBA Mortgage Approvals: Tuesday, 8:30.  BBA Mortgage Approvals  is a leading  indicator of housing activity in the UK. The indicator has been slowly moving higher, registering 32.2 thousand last month. The markets are expecting another slight gain in the upcoming release, with an estimate of 33.1 thousand.
2. Inflation Report Hearings: Wednesday, 9:00. High inflation continues to be a problem in the UK, as underscored by last week’s release of CPI and other inflation indicators. The BOE Governor Mervyn King and several MPC members will testify before the parliamentary Treasury Committee, and we could see some volatility from GBP/USD.
3. BOE Financial Stability Report: Wednesday, 9:30. This report is released twice a year, and focuses on the stability of the UK financial system as well as areas in need of improvement. A report that is more hawkish than expected is bullish for the pound.
4. CBI Realized Sales: Wednesday, 10:00. This index is based on a survey of retailers and wholesalers who are asked to rate their sales volume. The index, which  has been steadily  dropping,  slid to -11 points last month, its lowest level since January 2012. It has not been above the zero level, since the February reading. However, the markets are expecting a turnaround in the June reading, with an estimate of 4 points.
5. Current Account: Thursday, 8:30. This key release is directly related to currency demand, as a higher surplus indicates that foreigners are purchasing more pounds for goods and services and other transactions. The indicator posted a higher deficit last month of -14.0 billion pounds, which was higher than the estimate of -12.8 billion. The markets are expecting some improvement in the upcoming release, with an estimate of -11.8 billion pounds.
6. Final GDP: Thursday, 8:30. This quarterly release is a market-mover, and is eagerly awaited by the markets. The Q1 reading declined by 0.3%, which matched the forecast. The markets are expecting a turnaround in Q2, with an estimate of a 0.3% gain. Will GDP meet or beat this prediction?
7. GfK Consumer Confidence: Thursday, 23:01. This indicator continues to be mired deep in negative territory, pointing to deep pessimism, which in turns hinders consumer spending. The indicator posted a reading of -21 points last month, and little change is expected this time around.
8. Nationwide HPI: Friday, 6:00. This housing inflation index is an important measure of activity in the UK housing market. The index bounced back  nicely in the May reading, rising 0.4%. This was just shy of the 0.5% estimate. The forecast for the June release stands at 0.4%.
   
9. Index of Services: Friday, 8:30. This indicator measure the change in the GVA (Gross Value Added)  in the private and public sectors. The index rose o.6% last month, tying its highest climb this year. However, the markets are bracing for a weaker reading in June, with an estimate of 0.2%.

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

GBP/USD Technical Analysis

GBP/USD opened the week at 1.5731. The pair  touched a high of 1.5752, but it was all downhill after that. GBP/USD dropped sharply, dropping to a low of 1.5368. The pair managed to push above the 1.54 line and closed at 1.5416, which has been providing support to the pair  (discussed  last week).

Technical lines from top to bottom:

We  begin with strong resistance at 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  was breached as the pair  slid sharply, and  is back in a resistance  role.  Next is 1.5550, which gave way  during the week, but remained intact at the end of  the week.

GBP/USD closed the week at 1.5416. This line  was a  strong support line at the start of  the week.  This is followed by 1.5258, which  continues to provide strong support. It has held firm since late May.

1.5196 is next. This support level has remained intact since early June. It is followed by 1.5111, protecting the 1.51 line.

1.5000 is a critical support level. It has held steady since mid-March. This was early in a pound rally which lasted until May and saw the pound climb as high as the 1.56 level.

The final  support level for now is at 1.4896, just below the round number of 1.49.

I  am  bearish  on GBP/USD.

The pound has enjoyed a strong rally lasting several weeks, but this came to a crashing halt last week. The gains we have been seeing since late May was more a case of a weak dollar rather than a strong pound, and the dollar took full advantage of the QE announcement to roar back against the pound. The fallout from QE may still continue next week, and if British GDP does not impress, we could see the dollar continue to rise.

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.