GBP/USD Outlook Jan.13-17

GBP/USD managed to post some gains last week, as the pair closed at 1.6481. This week’s highlights include CPI and Retail Sales. Here is an outlook for the main events moving the pound, and an updated technical analysis for GBP/USD.

In the UK, the Manufacturing and Construction PMIs dropped in the December releases. US employment numbers started off the week strongly, as ADP Non-Farm Payrolls and Unemployment Claims looked sharp. However, NFP tumbled to 74 thousand, a two-year low,

Updates:

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

1. CPI: Tuesday, 9:30.CPI is one of the most important economic indicators and can have a significant impact on the movement of GBP/USD. The index has been very steady, with the past two releases just above the 2.0% level. No change is expected in the December release.
2. PPI Input: Tuesday, 9:30. Producer Price Index measures inflation in the manufacturing sector. The index has looked awful , posting four straight declines. The downward trend is expected to continue, with an estimate of -0.2%.
3. RPI Input: Tuesday, 9:30. The Retail Price Index Input is important gauge of consumer inflation. The index has posted two straight readings of 2.6%, and little change is expected in the December release.
4. CB Leading Index: Wednesday, 10:00. This index is based on 7 economic indicators, but has only a minor impact on GBP/USD since most of the data has already been released. The index dropped to a gain of just 0.4% last month, a four-month low. Will the indicator rebound in the December release?
5. RICS House Price Balance: Thursday, 00:01. This indicator measures the percentage of surveyors reporting property price increases. The index has been quite steady in recent readings, and more of the same is expected in the upcoming release.
6. 30-year Bond Auction: Thursday, Tentative. The average yield on 30-year bonds dropped to 3.61% in the November auction. The indicator is a useful gauge of investor confidence, but is unlikely to affect the movement of GBP/USD.
7. Retail Sales: Friday, 9:30. This key indicator helps track the level of consumer confidence in the UK. In November, Retail Sales bounced back from a decline and posted a gain of 0.3%, which matched the estimate. The markets are expecting the upward trend to continue, with the estimate standing at 0.5%.

* All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.6411, which was also the low of the week. The pair touched a high of 1.6517, breaking above resistance at 1.6475 (discussed last week). The pair closed the week at 1.6481.

Live chart of GBP/USD:

Technical lines from top to bottom

We begin with resistance at 1.6990, which is protecting the key 1.70 level. This line has remained intact since October 2008.

Next is resistance at 1.6705, which has held firm since May 2011. This is followed by the round number of 1.6600.

1.6475 continues to be busy and was breached four a fourth straight week. The line has switched to a support role as we begin the new week.

This is followed by 1.6343, which continues to be the first support line. It has some breathing room as the pair trades at higher levels.

1.6247 continues to provide the pair with strong support. This was a key resistance line in October and November 2012.

1.6125 is the next support level. This line has held steady since late November.

The round number of 1.60, a key psychological barrier, is providing the pair with strong support.

The final support level for now is 1.5893, which last saw action in November.

I am neutral on GBP/USD.

US employment numbers were a mix this week, throwing a January taper into doubt. At the same time, the fact that QE tapering is up and running could bolster confidence in the US economy and help the dollar. In the UK, PMIs remain strong but leveled off in December. Is this a signal that the hot UK economy has run out of steam? With the BOE firmly stating that it will not raise interest rates, the pound will need some strong data this week to maintain high levels against the US dollar.