GBP/USD Outlook – May 20-24

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.

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

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.

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.