GBP/USD Outlook May 19-23

GBP/USD had an uneventful week, posted slight losses. The pair closed the week just above the 1.68 line. The upcoming week is busy, highlighted by CPI and Retail Sales. Here is an outlook for the main events moving the pound, and an updated technical analysis for GBP/USD.

British Claimant Count Change continues to improve, but fell short of the estimate. The BOE Inflation Report also weighed on the pound, as the central bank said that it had no plans to raise interest rates before 2015. In the US, Unemployment Claims plunged to a seven year low, while housing and manufacturing data was sharp. However, consumer confidence fell short of expectations.

Updates:

• May 19, 11:38: The yen picks up: The yen has been quietly appreciating over the past week and overnight has touched key levels on USDJPY and elsewhere....

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

1. CPI: Tuesday, 8:30. CPI is the primary gauge of consumer inflation, and is one of the most important economic indicators. The index continues to lose ground and dropped to 1.6% in March. The estimate for the upcoming release stands at 1.7%.
2. PPI Input: Tuesday, 8:30. PPI Input has hit a brick wall, producing only one gain since last August. The index came in at -0.6%, well of the estimate of -0.1%. The markets are expecting a brighter April, with the estimate standing at 0.0%.
3. RPI: Tuesday, 8:30. RPI includes housing starts, which is excluded from CPI. The index dipped to 2.5% in March, matching the forecast. The forecast for the upcoming release is 2.6%.
4. BOE Deputy Governor Charles Bean Speaks: Tuesday, 17:30. Bean will speak at an event in London. Analysts will be looking for any hints as to future monetary moves from the BOE.
5. MPC Asset Purchase Facility Votes: Wednesday, 8:30. Analysts closely monitor the voting breakdown of the MPC vote on QE, which is expected to be a unanimous 9-0 decision. A non-unanimous vote indicates some dissension by policymakers as to the desirable QE level.
6. MPC Official Bank Rate Votes: Wednesday, 8:30. This decision is also expected to be a unanimous decision. A split vote would likely feed speculation about a rate hike by the BOE, which could result in the pound moving higher.
7. Retail Sales: Wednesday, 8:30. Retail Sales is the primary gauge of consumer spending, and an unexpected reading can affect the movement of GBP/USD. The indicator posted a paltry gain of just 0.1% last month, but that was good enough to beat the estimate of -0.4%. The markets are expecting some improvement in April, with an estimate of 0.4%.
8. Second Estimate GDP: Thursday, 8:30. Strong GDP releases continue to point to an improving UK economy. The indicator posted a 0.7% gain in Q1, matching the estimate. Little change is anticipated in Q2, with the estimate standing at 0.8%.
9. Preliminary Business Investment: Thursday, 8:30. This indicator, released each quarter, posted a strong gain of 2.6% in Q4 of 2013, its best reading since Q3 of 2012. However, this was short of the estimate of 2.6%. More of the same is expected for Q1, with the estimate standing at 2.3%.
10. Public Sector Net Borrowing: Thursday, 8:30. This release has posted two consecutive deficits, although the reading of GBP 4.9 billion last month, was much lower than the estimate of 8.9 billion. The markets are expecting the deficit to continue to shrink, with an estimate of GBP 3.6 billion.
11. CBI Industrial Order Expectations: Thursday, 10:00. This indicator is based on a survey of manufacturers and helps analysts track the health and direction of the manufacturing sector. The March reaching dropped sharply to -1 point, way off the estimate of 7 points. The markets are expecting a strong turnaround in the upcoming release, with an estimate of 4 points.

* All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.6859. The pair touched a high of 1.6903, and then dropped to a low of 1.6731, as support remained firm at 1.6703 (discussed last week). GBP/USD then recovered late in the week, closing at 1.6803.

Live chart of GBP/USD:

Technical lines from top to bottom

We begin with resistance at 1.7375. This line marked the start of a sharp pound rally in March 2006, which saw the GBP/USD push above 2.11.

Next is 1.7180, which has served in a resistance since October 2008. This is followed by 1.6990, which is protecting the key psychological level of 1.70.

1.6823 continues to be busy. The line was easily breached as the pair lost ground, and is currently a weak resistance line. It could see action early in the week.

1.6705 continues to provide support. GBP/USD approached this line last week before recovering. It could face pressure again this week if the pound loses ground.

The round number of 1.6600 follows. It has remained intact since early April, when the pound started its current rally. 1.6475 is the next support level.

1.6343 saw some activity in early February but has provided strong support since that time.

The final support line for now is 1.6247.