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The pound‘s troubles continue, as the currency lost almost two cents against the US dollar this week. GBP/USD closed the week at 1.5168. The upcoming week is a busy one, and the highlights include CPI, Retail Sales and GDP.  Here is an outlook of the events and an updated technical analysis for GBP/USD.

Solid UK employment numbers failed to boost the pound, which has been on a downward trend throughout the month of May. The dollar made some gains on Friday after a strong UoM Consumer Sentiment release.

Updates: GBP/USD opens the week trading steadily around 1.52, as important financial centers in Europe are on holiday.  Rightmove HPI rose by 2.1%, as in the previous month. GBP/USD enjoyed the not-enough hawkish statements from Evans, an FOMC member, and climbed to around 1.5260 on USD weakness. The UK released a host of inflation indicators on Tuesday, and the readings were less than impressive. CPI, the highlight of the day, dropped from 2.8% to 2.4%, missing the estimate of 2.6%. PPI fell by 2.3%, much worse than the estimate of -1.2%. RPI gained 2.9%, but fell short of the forecast of a 3.1% gain. Core CPI rose 2.o%, below the estimate of 2.3%. PPI Output declined 0.1%. The estimate stood at 0.2%. The only indicator to beat expectations was HPI, which posted a three-month high of 2.7%. This beat the estimate of 2.3%.   The weak numbers indicate that deflation is alive and kicking, and this could result in additional QE. CBI Industrial Order Expectations remains dismal, as it posted -20 points. The estimate stood at -18 points.The MPC Meeting Minutes and Retail Sales, both market-movers, will be released on Wednesday. The pound reacted by losing over one cent against the US dollar. GBP/USD was trading at 1.5146. The pound managed to partially recover as Fed officials didn’t talk about tapering QE. However, the bounce was limited. GBP/USD then dropped sharply on terrible retail sales numbers. Also PSNB slightly disappointed. BOE Deputy Governor Charles Bean spoke in Castle Donington. The MPC minutes indicated that the vote on maintaining the interest rate was 9-0, while the decision to keep QE at its present level was a 6-3 split. The minority, which included BOE Governor Mervyn King,  wanted to increase QE  from 375 billion pounds to 400 billion pounds.  The focus now shifts to the US, where Ben Bernanke testifies. Afterwards, attention will return to the UK and the second estimate for GDP. See how to trade the British GDP with GBP/USD.

Ben Bernanke triggers a big drama:    at first,  he stated that it would be premature to withdraw stimulus as this would hurt the recovery, and the USD dropped. However, when asked,  Bernanke mentioned that the Fed could taper, and the dollar rallied hard. GBP/USD already recovered and rose above 1.5150, only to crash down to 1.5040 at the time of writing: over a 100 pips of whipsaw.

British Second Estimate GBP improved from -0.3% to 0.3%, matching the forecast. Preliminary Business Investment dropped 0.4%, disappointing the markets which had anticipated a 1.7% increase. Index of Services rose 0.6%, just short of the estimate of 0.7%. GBP/USD is struggling, as the pair trades at 1.5072.

GBP/USD enjoyed the dollar correction and climbed as high as 1.5120, although it finds it hard to break any further.  As both the US and the UK head towards a long weekend, better than expected durable goods orders support the dollar a bit.

GBP/USD graph with support and resistance lines on it. Click to enlarge:     GBP USD Forecast May. 20-24

  1. Rightmove HPI:  Sunday, 23:01. This housing inflation release  has shown respectable rises in  recent readings, indicating activity in the British housing market. The previous release came in at 2.1%, and the markets will be hoping for a similar rise in the  May release.
  2. CPI: Tuesday, 8:30. This key inflation index has been quite steady, posting 2.8% gains in the past two releases. The estimate for the upcoming reading stands at 2.6%.
  3. PPI Input: Tuesday, 8:30. This inflation index dropped 0.1% last month, the first decline since January. The markets are braced for another drop in May, with an estimate of -1.2%.
  4. RPI: Tuesday, 8:30. RPI includes housing costs, which are not measured by CPI. This index has also been steady, and posted a 3.3% gain in April. The estimate for the May release stands at 3.1%.
  5. MPC Meeting Minutes: Wednesday, 8:30. Analysts will be looking at  the breakdown of the voting pattern by the MPC members in the interest rate and asset purchase decisions. Although the BOE has maintained the levels of these two items for quite some time, the markets have reacted in the past to split votes by the MPC members.
  6. Retail Sales: Wednesday, 8:30. Retail Sales looked stellar in March, with a 2.1% jump, only to post a drop of 0.7% in April. The estimate for the upcoming release stands at 0.0%. Will the indicator surprise the markets and push back into positive territory?
  7. Public Sector Net Borrowing: Wednesday, 8:30. The budget deficit ballooned to 16.7 billion pounds last month, the highest level in two years. The estimate stood at 14.3 billion pounds. The markets are expecting a much better result in the May release, with an estimate of 7.6 billion pounds.
  8. CBI Industrial Order Expectations: Wednesday, 10:00. This indicator has been mired in negative territory, indicating ongoing weakness in the UK manufacturing sector. The indicator dropped to -25 points last month, but the markets are expecting an improvement, with an estimate of -17 points.
  9. Second Estimate GDP: Thursday, 8:30. GDP is one of most important economic indicators, and can affect the movement of GBP/USD. The  indicator declined 0.3% in Q4 of 2012, and the weak figure weighed on the pound. The markets are expecting a turnaround for Q1, with an estimate of a 0.3% gain. Will GDP meet or beat this prediction?
  10. Preliminary Business Investment: Thursday, 8:30. This indicator measures the change in capital investments made by businesses and the government, and is released each quarter. The indicator has shown volatility, and posted a 1.2%  in Q4 of 2012  after a sharp 3.7% jump in the previous quarter. The markets are expecting a rebound in Q1, with a forecast of a 1.7% gain.
  11. BBA Mortgage Approvals: Friday, 8:30. Mortgage Approvals provides a good measure of activity in the British housing market. The indicator matched the forecast last month, with a reading of 31.2 thousand. The estimate for the upcoming release is slightly higher, at 32.7 thousand.

 

GBP/USD Technical Analysis

GBP/USD opened the week at 1.5344. The pair  touched a high of 1.5385, but  then resumed its downward slide,  dropping all the way to 1.5158, breaking through support at 1.5189 (discussed last week).  GBP/USD closed the week at  1.5168.

[do action=”tradingviews” pair=”GBPUSD” interval=”60″/]

Technical lines from top to bottom:

With the pound continuing to slump, we  begin at  lower levels. There is strong resistance at 1.5648.  This line has  held firm since mid-February. We next encounter resistance at 1.5560. This line was providing support  at the start of the month, but fell as the GBP/USD went on a sharp slide which continues. Next there is  resistance at  1.5484. This is followed by 1.5416. This line was providing support, but the pair broke through early last week. We next encounter support at 1.5258. This line was active last week, and has strengthened in resistance as the pair trades at lower levels. Next, 1.5189 is providing weak resistance. It could see more action early this week.

GBP/USD is receiving support at 1.5061,  which was last tested in the first week of April.  This is followed by 1.5010, protecting the all important 1.50 level.  Below is 1.4896, just below the round number of 1.49. It has held  fast since mid-March. The final support line for now is 1.4648, which was last tested in June 2010.

I  am bearish on the  GBP/USD.

The markets  remain  pessimistic about the prospects of the British economy.  This was  underscored by  the fact that  positive UK employment numbers failed to prop up the pound,  which continues  to dive – the  currency has shed four  cents  against the dollar in May.  We could see the pound  move closer  to the 1.50 level, especially if US numbers rebound this week.

Further reading: