GBPUSD WKLY Outlook

The British pound had a miserable week, asGBP/USD, lost almost 300 points. The pair closed at 1.5515. This week’s major events include Claimant Count Change and MPC Meeting Minutes. Here is an outlook of the events and an updated technical analysis for GBP/USD.

The pound lost ground after the Bank of England released a pessimistic Inflation Report, which stated that growth will continue to be weak, and inflation will be above the central bank’s target of 2.0% until 2015. The week ended on a dismal note, as Retail Sales declined by 0.6%, surprising the markets, which had anticipated a 0.5% gain.

1. Rightmove HPI: Monday, 00:01. The housing inflation indicator has looked weak recently, but managed to post a small gain in last month’s reading after two sharp declines. Will the index manage to remain in positive territory in the upcoming reading?
2. Claimant Count Change: Wednesday, 9:30. This key employment indicator has posted back-to-back declines, indicating some improvement in the UK employment picture. The markets are expecting another decline in February. The Unemployment Rate, which dipped down to 7.7% in Janauary, is expected to remain unchanged.
3. MPC Meeting Minutes: Wednesday, 9:30. This release follows shortly after the BOE’s decision on the interest rate and QE, and provides the breakdown of the vote by the nine members of the Monetary Policy Committee. Analysts are interested to know if the MPC votes were unanimous, or were there dissenting opinions as well.
4. Public Sector Net Borrowing: Thursday, 9:30. This indicator has posted fairly high borrowing levels in recent releases, disappointing the markets. However, the estimate for February is a surplus of 11.3 billion pounds. If the indicator can meet or beat this rosy estimate, we could see the pound show some improvement.
5. 10-year Bond Auction: Thursday, Tentative. The British 10-year bond yields have been fairly steady, and as such, are not expected to have much impact on GBP/USD. The previous release posted an average yield of 1.90%, and no significant change is anticipated in the upcoming release.
6. CBI Industrial Order Expectations: Thursday, 11:00. This manufacturing indicator has not been in positive territory, indicating ongoing pessimism by surveyed manufacturers. The markets are expecting a slight improvement in the February release, to 16 points.

Our preference: Short positions below 1.5545 with targets @ 1.545 & 1.541 in extension.

Alternative scenario: Above 1.5545 look for further upside with 1.56 & 1.5635 as targets.

Comment: the RSI is badly directed.

Technical lines from top to bottom:

With the pound dropping sharply, we begin from lower levels. There is resistance at 1.6122. This line has remained intact since January, when the pound began a downward spiral from which it is yet to recover. Next, there is resistance at 1.6060. This is followed by 1.5992, just below the psychologically significant number of 1.60.

Below, 1.5930 is providing resistance. This is followed by 1.5850. The line of 1.5750 has seen a lot of activity recently, and is currently in a resistance role. This is followed by resistance at 1.5648. This line has strengthened as the pair trades at lower levels.

GBP/USD is receiving support at 1.5484. This line was tested at the end of the week, but remains intact. Moving lower, we encounter support at 1.5406, which has held firm since July 2012. Below, there is support at 1.5361, which has not been tested since last June. The pound started a rally at that time, which lasted until last September. Next, there is support at 1.5282. This is followed by 1.5189, which has remained in place since July 2010. The final line for now is 1.5010, which is protecting the all-important 1.50 level.

I remain bearish on GBP/USD.

The pound has proved no match for the US dollar in 2013, and has shed over seven cents since early January. The UK economy continues to stumble, and most economic indicators point to ongoing weakness, with no relief in sight. The pair may not repeat last week’s sharp slide, but the dollar could continue to post gains against the British currency. Chart by Timelessfx write up by FXCrucnch