GBP/USD Outlook March 17-21

GBP/USD posted sharp drops during the week and ended the week close to a cent lower. This week’s highlights are Employment Change and the Annual Budget release. Here is an outlook for the main events moving the pound, and an updated technical analysis for GBP/USD.

British NIESR GDP Estimate posted another strong gain, as the British economy continues to move in the right direction. Over in the US, the news was generally positive, as retail sales numbers met expectations, while Unemployment Claims dropped to a three-month low.

Updates:

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

1. Rightmove HPI: Monday, 00:01. This house inflation indicator is an important gauge of activity in the UK housing market. The index posted an excellent gain of 3.3%, and will be hard pressed to post these kinds of numbers in the upcoming release.
2. BOE Deputy Governor Jon Cunliffe Speaks: Monday, 9:30. Cunliffe will discuss the financial markets at an event in London. Remarks that are more bullish than expected are bullish for the pound.
3. BOE Governor Mark Carney Speaks: Tuesday, 17:45. Carney will address an event in London. Analysts all ears when the Governor speaks, and any hints about a potential interest hike could give the pound a boost.
4. Claimant Count Change: Wednesday, 9:30. This is one of the most important events on the calendar and should always be treated a market-mover. The indicator continues to post losses, indicative of an improving economy. Last month’s reading came in at -27.6 thousand, easily surpassing the estimate of -18.3 thousand. Another strong reading is expected in February, with an estimate of -23.3 thousand. The Unemployment Rate is expected to remain at 7.2%.
5. MPC Asset Purchase Facility Votes: Wednesday, 9:30. Analysts carefully monitor the breakdown of the most recent vote on QE, which currently stands at 375 billion pounds. The breakdown is expected to be a unanimous decision (9-0).
6. MPC Official Bank Rate Votes: Wednesday, 9:30. With increased speculation about a rate hike due to the improved British economy, any difference of opinion in the vote on interest rate levels could move the markets. Recent votes have been unanimous, and the markets are expecting the past vote to have been a 9-0 vote in favor of maintaining rates at 0.50%.
7. Average Earnings Index: Wednesday, 9:30. This indicator is an important gauge of consumer inflation. The index has been moving upwards, and came in at 1.1% last month, above the estimate of 0.9%. The upward trend is expected to continue, with the  estimate standing at 1.3%.
8. Annual Budget Release: Wednesday, 12:30. This key event should be treated as a market-mover. The budget includes the government’s forecast for spending and borrowing for the coming year, and market reaction could have a major impact on the direction of the pound.
9. CBI Industrial Order Expectations: Thursday, 11:00. This indicator is based on the views of surveyed manufacturers. The indicator pushed into positive territory last month, with a reading of +3 points. The upward trend is expected to continue, with the estimate standing at 5 points.
10. Public Sector Net Borrowing: Friday, 12:30. The indicator looked sharp in January, posting its first surplus since last July, with a reading of -6.4 billion pounds. This was certainly positive news, but did fall short of the estimate of -9.3 billion. The markets are bracing for a large deficit for February, with an estimate of 7.8 billion. Will the indicator surprise the markets and beat the estimate?

* All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.6731. The pair quickly touched a high of 1.6741 before reversing directions and dropping all the way to 1.6568, breaking below support at the round number of 1.66 (discussed last week). GBP/USD recovered, closing the week at 1.6644.

Live chart of GBP/USD:

Technical lines from top to bottom

We start with resistance at 1.7383. This line marked the start of a rally by the pound back in April 2006, which climbed as high as the 2.11 level.

1.7180 has served in a resistance role since October 2008.

1.6990 is next. This line has been protecting the key 1.70 level and has held firm since October 2008.

1.6823 held firm as the pound moved higher late in the week before retracting. This line has some breathing room as the pound trades just above the 1.67 line.

1.6705 continues to see action and was breached again this week. With the dollar showing some improvement, this line has switched to a support role.

The round number of 1.6600 was briefly broken as the pair posted sharp gains. It recovered and remains a support line, although not a strong one.

1.6475 continues to provide strong support. 1.6343 is the next support level. This line saw some activity in early February but has provided strong support since then. 1.6247 follows.

The final support level for now is 1.6163. This was a key resistance line in October and November 2012.

I am neutral on GBP/USD.

GBP/USD dipped last week, but remains at high levels, as the British economy continues to produce solid numbers. UK Claimant Change is always a market-mover, and the Annual Budget Release out of London will be closely watched. The Federal Reserve is expected to trim QE for a third time, and this could give the dollar a boost.