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The British pound continued to lose ground, as GBP/USD  closed the week at 1.6060. The upcoming week has six releases, including key  employment  data.  Here is an outlook for the upcoming events, and an updated technical analysis for GBP/USD.

The dollar made further headway against the pound last week, buoyed by  strong employment and consumer confidence  data  in the US last week. As well, the pound was hurt by  weak UK housing data, which points to a sluggish housing sector.

Updates: GBP/USD is steady, and   was trading at 1.6071. The Leading Index posted an increase of 1.0%, which was the same as last month. The index has now stayed above the zero level for three consecutive readings. GBP/USD has edged down, and was trading at 1.6050. The BOE released its quarterly inflation report,  which stated that  inflation will likely stay above the 2% target for at least another year. Employment figures were positive, as Claimant Count Change fell by 13.7K, surprising the markets, which had forecast an increase in unemployment claims of 4.9K. The Unemployment Rate  fell slightly  to 8.2%, down from last month’s reading of 8.3%.  The  pound  was down sharply, as  GBP/USD  fell below the the 1.60 level, and was trading at 1.5916. The pound continued to react negatively to the BoE’s inflation report.  The central bank also  lowered economic growth forecasts,  raising concerns that  the central bank could  implement another round of QE.  GBP/USD is dropping, and was trading at 1.5838, a one-month low.

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

  1. Trade Balance: Tuesday, 8:30. Trade Balance declined sharply in April,  as the deficit reached -8.8B, which was well below the market  forecast.  The markets are forecasting  some improvement  for May, with a prediction of -8.4B.  
  2. CB Leading Index: Tuesday, 9:00. This composite index has moved upwards for three consecutive readings, climbing to 1.0%. in April. Will the index continue  this positive trend in May?
  3. Claimant Count Change: Wednesday, 8:30. This key unemployment  indicator recorded  a sharp drop in  unemployment claims last month, with reading of 3.6K. The market  estimate for this month calls  for a  rise in the indicator,  of 4.9K. Will the indicator meet or beat  the May  forecast? The unemployment rate was 8.3% last month, and no change is expected in May.
  4. BOE Gov King Speaks: Wednesday, 9:30. The head of the central bank will be delivering a speech on the Inflation Report,  and analysts will be looking for some hints as to future monetary policy. A speech that is more hawkish than expected is bullish for the pound.
  5. BOE Inflation Report: Wednesday, 9:30. This quarterly report is a key indicator, and provides important data about the central bank’s views on inflation and economic conditions.
  6. 10-y Bond Auction: Friday, tentative. The previous bond auction was held in April and the figures for that auction were 2.22/1.9.

*All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.6118. After reaching a high of 1.6199, the pound weakened, as the pair easily broke through the weak support level of 1.6142 (discussed last week). GBP/USD dropped to 1.6060, where it closed the week.

Technical levels from top to bottom

We start with resistance at 1.6474. After falling below this level last summer, GBP/USD went on a sharp spiral downwards, which lasted until October 2011.

Next, 1.6356, is providing the pair with strong resistance. This is followed by 1.6265, which has strengthened as GBP/USD trades at lower levels. The 1.6142 line is now  in a resistance role, after  providing the pair with support  in recent  weeks. This is followed by the psychologically important support level of 1.60, which  looks to  be tested if the dollar continues to rally. Next, 1.5930, which saw a lot of movement in April, has been providing strong support for the pair.

Below, there is support at 1.5805, which also was tested in April. The next support level is 1.5750, which has provided support since mid-March. The  next support level is at  1.5648, which was last tested in March. The final line for now is 1.5603, which has held firm since January.

I  am bearish  on GBP/USD.

GBP/USD continues on a downward trend. Stronger US data coupled with the turmoil in Europe is sending investors to safe haven currencies such as the dollar, and the pound is paying the price. Unless there is some disappointing data out of the US this week, look for the pound  to continue to lose ground to the dollar, as the pivotal line of 1.60 is now in sight.

Further reading: