GBP/USD Forecast Sep. 8-12

The British pound had one of its worst weeks in recent memory, shedding almost 300 points against the surging US dollar. Can the pound turn things around? This week’s highlights are Manufacturing Production and the Inflation Report Hearings. Here is an outlook for the main events moving the pound, and an updated technical analysis for GBP/USD.

The markets were not impressed with mixed British PMIs, which are pointing to unbalanced growth in the UK. The BoE kept a steady course with interest rate and QE levels. In the US, Nonfarm Payrolls slumped to a 7-month low, while services and manufacturing PMIs were solid and beat the estimates.

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

1. Halifax HPI: Monday, 8th-9th. This housing price index provides a gauge of activity in the housing markets. The index rebounded strongly last month, posting a strong gain of 1.4%. This easily beat the estimate of 0.5%. The markets are bracing for a weak gain of just 0.2% in the upcoming release.
2. BRC Retail Sales Monitor: Monday, 23:01. This minor event looks at retail sales in BRC shops. The indicator has posted back-to-back declines, pointing to weaker consumer spending.
3. BOE Governor Mark Carney Speaks: Tuesday, 8:30. Carney will address an event in Liverpool. The markets will be all ears, looking for any clues as to the timing of a rate hike by the BoE.
4. Manufacturing Production: Tuesday, 8:30. This indicator is a key event and can have a major impact on the movement of GBP/USD. The indicator posted rebounded last month, posting a slight gain of 0.3%. This was well below the estimate of 0.7%. The forecast for the upcoming release is 0.3%.
5. Trade Balance: Tuesday, 8:30. Trade Balance is directly linked to currency demand, as foreigners must purchase pounds in order to buy British goods. The trade deficit continues to widen, and hit GBP 9.4 billion in July, above the estimate of 8.9 billion. The markets are expecting a better result in the August reading, with an estimate of -9.1 billion.
6. NIESR GDP Estimate: Tuesday, 14:00. This monthly indicator helps analysts track GDP, which is released each quarter. The indicator slipped to 0.6 % in July, its weakest reading in over a year. Does this point to a slowing down of the UK economy? The markets will be hoping that the upcoming release beats the estimate.
7. Inflation Report Hearings: Wednesday, 13:45. This event should be treated by traders as a market-mover. BOE Governor Mark Carney and several MPC members will testify on the country’s inflation and economic outlook before Parliament’s Treasury Committee.
8. RICS House Price Balance: Thursday, 11:00. This indicator is a gauge of activity in the housing sector. The index has been losing ground, slipping to 47% last month, marking a 6-month low.
9. 30-year Bond Auction:  Thursday, Tentative. The yield on 30-year bonds has dropped slightly in recent releases and came in at 3.53% at the last auction. No significant change is expected in this week’s release.
10. Construction Output: Friday, 8:30. The indicator has struggled, but posted a strong gain of 1.2% in July, beating the estimate of 1.1%. The forecast for the upcoming release is 0.7%.
11. CB Leading Index: Friday, 8:30. This index is based on 7 economic indicators. It is considered a minor event since most of the data has already been released. In July, the index posted a gain of 0.6%.

* All times are GMT

GBP/USD Technical Analysis

GBP/USD started the week at 1.6591, and managed to hit a high of 1.6644. It was all downhill after that, as the pair tumbled as low as 1.6281. GBP/USD closed at 1.6315, as support remained firm at 1.6310 (discussed last week).

Live chart of GBP/USD:

Technical lines from top to bottom

1.6740 capped the pair on a recovery attempt in August and is high resistance now. 1.6660 was a swing low in April and also in August.

1.6615 is the top of the current range after capping it in August. The bottom of the range is at 1.6535, which has reverted to a resistance role.

Below, we have 1.6465, which was the bottom in March. Further below, the round number of 1.64 is providing resistance.

1.6310 was a cushion during January and is an immediate support line. This is followed by 1.6250, the low seen in February.

1.6131 has remained intact since August 2011. At that time, the dollar posted an impressive rally which as GDP/USD dropped close to the 1.53 line.

1.6006 has held firm since October, and stands just above the psychologically important 1.60 level.

1.5909 is the final support line for now. It was last tested in late October.

I am bearish on GBP/USD.