GBP/USD Outlook Oct. 8-12

GBP/USD was unchanged this week, as the pair closed at 1.6132. The upcoming week  has eight  events, including Manufacturing Production, a key release.  Here is an outlook of the upcoming events, and an updated technical analysis for GBP/USD.

UK  releases continue to perform close  to  the market estimates. There were no surprises from the BOE last week, as the key QE and the benchmark interest rate remained unchanged.

Updates: Manufacturing Production was a big disappointment. The key indicator fell 1.1%, well below the estimate of a 0.6% loss. Trade Balance also looked sluggish, as the deficit  ballooned  to 9.8 billion pounds. The market estimate stood at a deficit of 8.3B.  Industrial Production declined 0.6%, matching the market forecast. GBP/USD is steady, after testing the 1.60 line. The pair was trading at 1.6037. The NIESR GDP Estimate, released monthly, jumped 0.8% in September. It was the indicator’s best performance since August 2010. After dropping below 1.60, the pound has edged upwards. GBP/USD was trading at 1.6024. The pound has edged up, as it moves into the mid-1.60 range. GBP/USD was trading at 1.6042.

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

  1. BRC Retail Sales Monitor: Monday, 23:01. The indicator posted a decline for the first time since May. The markets will be hoping for a rebound in the October release.
  2. RICS House Price Balance: Monday, 23:01. This housing indicator has looked very sluggish throughout 2012, and slumped 19% in the September release.  A similar reading is expected this month.
  3. Manufacturing Production: Tuesday, 8:30. This key indicator jumped 3.2% last month, its best performance in over five years. The markets are expecting a much weaker for the September reading, with an estimate of 0.6%.
  4. Trade Balance: Tuesday, 8:30. Trade Balance posted a deficit of -7.1 billion pounds in the September reading, beating the forecast. The forecast for this month calls for the deficit to widen to -8.3B.
  5. NIESR GDP Estimate: Tuesday, 14:00. After two consecutive declines, the monthly GDP estimate posted a modest 0.2% gain. The markets will be hoping for another reading in positive territory this month.
  6. 30-year Bond Auction: Thursday, Tentative. The yield at the previous auction fell below the 3% level, its lowest mark in over three years. A similar reading is expected for the October auction.
  7. CB Leading Index: Friday, 9:00. Last month, the composite index posted its first gain since July,  a very modest 0.1%. Will the index post another gain  in the October release?

*All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.6122. The pair  touched a low of 1.6058, before rebounding to  touch a  high of  1.6217. The pair closed the week at 1.6132, as the resistance line of 1.6122 (discussed last week) held firm as the week ended.

Technical lines from top to bottom:

We  begin with resistance at 1.6738. The next line of resistance is at the round number of 1.66. This line was last tested in August 2011. Next, there is resistance at 1.6475.   This is followed by the 1.6343 line.  Below is 1.6247, which held steady this week as the pound pushed  higher before retracting.

GBP/USD  is receiving weak support at 1.6122. This line was breached as the pair dropped, before bouncing back up.  Look for this weak support line looks to be tested further if the pound continues to weaken. The next line of support is at 1.6060. The pair briefly broke through this line, before retracing. Below, there is support at 1.5992. This line has held firm since early September.

Next, 1.5930 continues to provide the pair with strong support. The next support line is at 1.5805.   This is followed by 1.5750, which was last tested in late August. This is followed by support at 1.5648. The final support line for now is at the round figure of 1.5600.

I am neutral on GBP/USD.

The pound has  enjoyed a  sharp gains  since August, but the pair has been marked by choppy trading for the past two weeks.  Is the  summer rally over?  The UK economy is not looking particularly strong, so a lot will depend on releases out of the US. Employment numbers have been improving of late, and  a stronger US economy  could  fuel demand for currencies such as the pound, as investors feel less of a need to run to the safe-haven US dollar.

Further reading:

Kenny Fisher

Kenny Fisher

Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.