GBP/USD Outlook – May 17-21

A busy week expects cable traders: inflation and retail sales will stand out among the many events. Here’s an outlook for the events that will rock the Pound and an updated technical analysis for GBP/USD, now at lower ground.

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

Yet another improvement was seen in the British job market,a positive legacy of Brown’s government. Also other economic indicators shined, but this wasn’t enough for the Pound. OK, let’s start. The technical analysis will follow:

1. Rightmove HPI: Published on Sunday at 23:00 GMT. The earliest house price report is published early in the week, but isn’t too accurate. In the past 4 months, Rightmove has shown rises in prices. The 2.6% rise seen last month will probably be followed by a smaller rise this time.
2. CPI: Published on Tuesday at 8:30 GMT. Inflation has picked up in Britain, but didn’t get out of control. Now that the elections are behind us, Mervyn King can act against it, and not only dismiss it. The rise to an annual rate of 3.4%, above the government’s target, will probably be followed by a similar figure. Also Core CPI is at 3%, and the RPI (retail price index) already reached 4.4%. If expectations are met, and inflation remains above 3%, Mervyn King is obliged to publish an open letter to the government explaining the reasons for this and the measures that will be taken to tackle it. This might reveal an upcoming rate hike. CPI is expected to stand now at 3.5%.
3. CBI Industrial Order Expectations: Published on Tuesday at 10:00 GMT. The Confederation of British Industry surveys 550 manufacturers for this important figure. The relative level of order volume for the next months has been stable recently – around -36. This negative number will probably be followed this time as well.
4. MPC Meeting Minutes: Published on Wednesday at 8:30 GMT. It will be interesting to see how the different members voted on the last rate decision. Note that a unanimous vote, seen in recent months won’t necessary repeat itself. Also here, further policy hints might be released.
5. Retail Sales: Published on Thursday at 8:30 GMT. This important consumer related figure rose by 0.4% last month, slightly below expectations, but still rising for a second month in a row, in this rather volatile indicator. Another small rise is expected this time – 0.3%.
6. Public Sector Net Borrowing: Published on Friday at 8:30 GMT. This is the last release before the next government assumes office. Borrowing doubled to 23.5 billion last month, exceeding expectations and creating worries about the government debt. A drop will probably be seen this time – to 11.2 billion.
7. Business Investment: Published on Friday at 8:30 GMT.  This quarterly release dropped in the past 2 years, preceding the financial crisis. The drop in business investment was serious in Q4 – 5.8%. A rise this time cannot be ruled out, although a small drop sure is possible. This is in line with the weak growth rate.

GBP/USD Technical Analysis

The Pound traded between 1.4780 and 1.5045 during most of the week, but then made a big collapse and closed at 1.4532, close to the swing low of 2010 that was set in the previous week.

GBP/USD now ranges between 1.44 and 1.4780, a wide range that already saw strong moves. Note that some of the lines have changed since last week’s outlook.

Looking up, 1.5045 is a minor line of resistance, serving as such during the past week. Higher, 1.5130 is already a much stronger line, that proved itself to be decisive recently.

Higher, 1.5350 still has a minor role, after working as a pivotal line for many weeks, and it’s followed by 1.5520.

1.44 was the low point in May 2009 and now works as a support line. Lower, 1.4130 provides further support, followed by 1.3950. All served as support line during the beginning of 2009.

The ultimate support line is 1.35, the 2009 low for the Pound. This is still far now.

I continue being bearish on GBP/USD.

Yet again, some economic indicators point to recovery and Pound strength, but the fragile financial situation i the Euro zone has a strong impact on British banks and the Pound, so further losses can be expected.

Further reading:

• For a broad view of all the week’s major event in all currencies, read the  forex weekly outlook.
• For the Euro, read the  EUR USD Forecast.
• For the Australian dollar, read the  AUD/USD forecast.
• For USD/CAD, check out the  Canadian dollar forecast.

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