GBP/USD Outlook May 6-10

GBP/USD continues to look sharp, adding close to one cent this week. The pair closed the  week at 1.5574. This week’s highlights are Manufacturing  Production and the Official Bank Rate.  Here is an outlook of the events and an updated technical analysis for GBP/USD.

The pound  enjoyed another good week as the currency  got a boost from last week’s British PMI readings.  All three beat the estimate, raising hope that the  UK economy may finally be  heading in the right direction.

Updates: BRC Shop Price Index dropped from 1.4% to 0.4%. BRC Retail Sales will be released later on Tuesday. GBP/USD was steady at 1.5529. The British pound enjoyed the better than expected manufacturing production to rise. The Bank of England decided not to change the interest rate nor the QE program, as widely expected. Technical:  GBPUSD: Intra-day Waves Are Turning Bullish For a Possible Re-test of 1.5600. Later, the dollar stormed across the board, with USD/JPY breaking 100. This hurt the pound, which fell below 1.55.

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

1. Halifax HPI:  Monday, 6th to 9th. This important housing release is a good indicator of activity in the UK housing industry. The indicator slipped last month, posting a modest 0.2% gain. The estimate for the May release remains at 0.2%.
2. BRC Shop Price Index: Monday, 23:01. This indicator only surveys shops that are part of the BRC chain. The indicator has been moving upwards in recent readings, and posted   a respectable 1.4% gain last month. The markets will be  hoping for another strong release in May.
3. BRC Retail Sales Monitor: Tuesday, 23:01. The BRC Retail Sales Monitor climbed 1.9% in April.  This indicator is published ahead of  official retail sales, and gives analysts a good indication of the health of the retail sales sector.
4. Manufacturing Production: Thursday, 8:30. This key event bounced back from a decline in the March release, and posted a 0.8% gain in April. The forecast for the May reading calls for a smaller gain of 0.4%. Will the indicator beat the estimate?
5. Asset Purchase Facility: Thursday, 11:00. QE has been pegged at 375 billion pounds since July 2012. No change is expected in the upcoming reading, although it will be interesting to see if there is another split vote by policymakers.
6. Official Bank Rate: Thursday, 11:00. This key event will be watched closely by the markets. The rate has not moved since 2009, and the BOE is expected to leave the rates unchanged at 0.50%.
7. NIESR GDP Estimate: Thursday, 14:00. This indicator is released monthly, helping analysts predict GDP, which is only released each quarter.
8. Trade Balance: Friday, 8:30. Trade Balance was a disappointment in April, posting a deficit of 9.4 billion pounds. This was higher than   the estimate of 8.7 billion pounds. The estimate for the upcoming reading stands at 8.9 billion pounds.

GBP/USD Technical Analysis

GBP/USD opened the week at 1.5489. The pair  dropped to a low of 1.5467, but bounced back in impressive fashion, pushing past the 1.56 line, to a high of 1.5606. The pair  closed the week at 1.5574.

Technical lines from top to bottom:

We  begin with resistance at  1.5975. This line has not been tested since January. This is followed by 1.5875. This line has remained intact since early February. Next, there is resistance at 1.5750. This line saw a lot of activity in the first half of February, before the pound began a dive which lasted until mid-March. The next line of resistance is at 1.5648.

GBP/USD is receiving support at  1.5560. This line  served in a resistance role since mid-February, and is now a  weak line of support. It could see activity early next week.  Next there is support at  1.5484. This line has strengthened as the pair trades at higher levels.  This is followed by 1.5416. Below, there is support at 1.5258. Next, we encounter support at 1.5189.  Below, there  is a support line at 1.5061,   which was tested in the first week of April.  This is followed by 1.5010, protecting the all important 1.50 level.  The final  support level for now is at 1.4896, just below the round number of 1.49.

I remain  neutral on GBP/USD.

The pound gained more ground on the dollar last week, as British PMI all pointed upwards. The US continues to puzzle the markets, as employment data looked solid, but other key sectors are showing weakness. The recent downgrading of UK debt by Fitch underscores concern about the health of the British economy, but the markets will be happy to change their tune if British releases continue to improve.

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.