GBP/USD Forecast Sep. 15-19

The British pound lost ground early last the week but recovered and posted slight gains over the week. The pair closed the week at 1.6253. It promises to be a busy week, with some key releases as well as the Scottish independence referendum. Here is an outlook for the main events moving the pound, and an updated technical analysis for GBP/USD.

British Manufacturing Production, last week’s market-mover, met expectations. In the US, employment data was soft, but consumer confidence and retail sales beat the estimates. Despite the strong US numbers, the pound was able to hold its own against the dollar.

Updates:

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

1. Rightmove HPI: Sunday, 23:01. This housing inflation index helps gauge the amount of activity in the British housing market. The index has been losing ground, and posted a sharp decline of 2.9% in July. Will the downturn continue?
2. BoE Quarterly Bulletin: Monday, 23:01. This report provides details and commentary about the BoE’s monetary policy operations. As a minor event, it is unlikely to affect the movement of GBP/USD.
3. CPI: Tuesday, 8:30. CPI is the primary gauge of consumer inflation. The index softened last month, with a gain of 1.6%. This was shy of the estimate of 1.8%. The markets are expecting another drop, with the August estimate standing at 1.5%.
4. PPI Input: Tuesday, 8:30. This index is an important indicator of manufacturing inflation. After seven straight declines, the markets are expecting a gain of 0.1% in the upcoming release.
5. RPI: Tuesday, 8:30. RPI includes housing costs, which are excluded in the CPI release. The index has hovered close to 2.5% throughout the year, and the August estimate stands at 2.5%, unchanged from the previous reading.
6. Average Earnings Index: Wednesday, 8:30. The indicator has been slipping for four straight readings and dropped to -0.2% last month, edging below the estimate of -0.1%. The markets are expecting a turnaround in the August reading, with an estimate of +0.5%.
7. Claimant Count Change: Wednesday, 8:30. This indicator measures the change in unemployment claims in the UK. It is one of the most important economic releases and traders should treat it as a market-mover. The indicator continues to post impressive numbers, and came in at -33.6 thousand claims, easily beating the estimate of -29.7 thousand. The estimate for the upcoming release stands at -29.7 thousand. The unemployment rate, which has been falling for five straight months, is expected to dip to 6.3%.
8. 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.
9. MPC Official Bank Rate Votes: Wednesday, 8:30. The previous vote was 7-2, with 2 members favoring a hike in rates, with the majority in favor of maintaining interest rates at 0.50%. The split vote caused a stir in the markets, and another split vote could push the pound higher. The markets are anticipating another 7-2 vote.
10. Retail Sales: Thursday, 8:30. Retail Sales is the most important consumer spending indicator, and can have a significant effect on the movement of GBP/USD. After several soft readings, the markets are expecting better news from the August release, with the estimate standing at 0.4%.
11. CBI Industrial Order Expectations: Thursday, 10:00. The indicator tends to show sharp fluctuations and bounced back last month, rising 11 points. This crushed the forecast of 4 points. Another strong gain is expected, with an estimate of 9 points.
12. Scottish Independence Vote:  Thursday. Final results expected on Friday. Scottish voters will decide whether to split from the United Kingdom or stay as one country with England, Wales and Northern Ireland. A YouGov poll conducted for The Sunday Times and released on Sunday showed the “yes” vote at 51% and “no” at 49% and that certainly hurt the pound, while a more updated poll already showed a 4% lead. There are many other polls that impact sterling. Scotland’s first minister and SNP leader Alex Salmond has been a vocal proponent of independence. British Prime Minister David Cameron wants Scotland to remain part of an undivided United Kingdom of Great Britain and Northern Ireland. Uncertainty over the outcome of the Scottish referendum weakened the pound. It’s important to note that the odds lean to a No vote, but nothing is priced in. So, a No vote would send the pound significantly higher, yet a Yes vote would be devastating for the pound, and it could test the 2010 levels.

* All times are GMT

GBP/USD Technical Analysis

GBP/USD started the week at 1.6214, and dropped to a low of 1.6052. The pair then rebounded and climbed to a high of 1.6276. The pair closed the week at 1.6253, with immediate support at 1.6250 (discussed last week).

Live chart of GBP/USD:

Technical lines from top to bottom

We start off with resistance at 1.6740. This line capped the pair on a recovery attempt in August and is currently high resistance.

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.

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

1.6310, the next resistance line, was a cushion during January.

This is followed by 1.6250, the low seen in February. It was breached last week and has switched to a support line. It could see more action early in the week.

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 was last tested in late October.

The final support line for now is 1.5746, which was important support in January.

I am bearish on GBP/USD.

We’ll get a look at British CPI and Retail Sales, but the market focus will be on Scotland, with a possibly historic referendum taking place on Thursday. With the vote expected to be very close, we could see some nervous investors decide to dump their pounds. With the US economy moving forward and the Fed expected to further trim QE,  the improved US dollar could post further gains.

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EUR/USD Forecast Sep. 15-19

EUR/USD dived to lower levels, but it was certainly not a one way street. Has it bottomed out? The big events coming up are a German survey and final inflation data for August. Here is an outlook on the highlights of this week and an updated technical analysis for EUR/USD, now on lower ground.

The echoes from Draghi’s rate cuts and ABS continued weighing on the euro, as more analysts see the euro as a funding currency., but on the other hand, industrial production was strong and so was the German trade balance. In the US, the JOLTS number was OK, while jobless claims disappointed and retail sales beat. The greenback showed strength against many currencies, but the  euro held up relatively well.

Updates:

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

1. Trade Balance: Monday, 9:00. The euro-zone enjoys a  trade balance surplus, and this is one of the things that keeps the euro bid in times of trouble. After a positive figure of 13.8 billion in June, an even stronger number is predicted now, after Germany’s data beat expectations: 15.9 billion.
2. German ZEW Economic Sentiment: Tuesday, 9:00. Staying in Germany, this important business survey has been on the back foot since the beginning of the year, falling and disappointing each time. It reached a low of 8.6 points in August and is now expected to stabilize around these levels, but slide just a bit more: 5.2 points. The all-European survey is predicted to drop from 23.7 points recorded in August to 21.3 points now.
3. Italian Trade Balance: Wednesday, 8:00. This isn’t the biggest market mover normally, but this time we have two monthly releases at once. Italy enjoys a surplus in its trade. If both figures go in the same direction: both fall short of the previous 3.68 billion surplus or both exceed it, the publications could have an impact. Italy is expected to report a surplus of 1.33 billion for July and 2.47 billion for August.
4. Final CPI: Wednesday, 9:00. The preliminary report for August showed a new multi-year low of 0.3% in headline inflation, and this is one of the drivers of more monetary stimulus. The upside comes from core inflation, which ticked up to 0.9%. Both numbers are likely to be confirmed now.
5. German PPI: Friday, 6:00. Producer prices fell short of expectations in recent months, with no rise in prices in 2014. After a drop of 0.1% in July, the data for August is expected to show a drop of the same magnitude, but it might also finally show a rise, perhaps thanks to the fall of the euro.
6. Current Account: Friday, 8:00. Similar to the trade balance figure, also the wider current account figure is positive. After a surplus of 13.1 billion in June, a larger figure is likely for July: 14.3 billion.

* All times are GMT

EUR/USD Technical Analysis

Euro/dollar started the week by trading above the 1.2920 level (mentioned last week). After the pair lost that line, it reached a low of 1.2865 before climbing back up above 1.2920 – a line which serves as a clear separator of ranges.

Live chart of EUR/USD:

Technical lines from top to bottom:

1.3295 is the first line for now: it was the low level in November. 1.3220 is the pre-gap line and now serves as important resistance.

1.3175 worked in both direction during 2013 and served as the bottom line of the range in August 2014. 1.3150 is was a low during August and now serves as resistance.

Below, the round number of 1.31 served as resistance several times, and the all important figure below is 1.30, which is more than a round number.

Below 1.30, we find support at 1.2960 which capped the pair’s recovery attempts after it fell to lower ground. The 1.2920 level was the initial low and has now turned into a pivotal line.

1.2860 is the recent 2014 low and is now key support. Very close, 1.2840 served as support in June 2013 and is the next line before the round number of 1.28, which also worked as support at around the same period of time.

1.2750 was the low where the pair traded last time it was around these levels: July 2013. This is followed by 1.2660 – a key line to the downside, which marks the beginning of long term uptrend support.

Here is a closer look at the recent trading levels, using the hourly chart:

Long term uptrend line still fought over

After downtrend support was left behind, we are now reaching a much older line, which accompanied the pair since November 2012 and was touched twice in 2013 and since forgotten. The pair broke below the line, but managed to give another fight.

I turn from neutral to bearish on EUR/USD

The much needed consolidation could be over. We have finally seen more than a “dead cat” bounce and after this correction, the direction remains lower. Monetary policy convergence is the key: the ECB is about to launch its program soon while the Fed is nearing the end of its program. The pair is still far fromthe ECB comfort zone of 1.20-1.25 and we could see a resumption of the fall, even if Yellen does her best not to rock the boat.

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USD/JPY Forecast Sep. 15-19

USD/JPY is taking in the view at 6-year highs, as the yen shed over 200 points last week. The pair closed on Friday above the 107 level. The upcoming week is a quiet one, with only four events on the calendar.Here is an outlook on the major events moving the yen and an updated technical analysis for USD/JPY.

Japanese GDP sagged with a sharp decline, while manufacturing data was a mix. US employment data was soft, but consumer confidence and retail sales beat the estimates.

Updates:

USD/JPY graph with support and resistance lines on it:

1. BOJ Governor Haruhiko Kuroda Speaks: Tuesday, 5:30. Kuroda will host a press conference in Osaka. The markets will be listening closely, looking for hints as to future monetary policy.
2. Trade Balance: Wednesday, 23:50. Trade Balance is directly linked to currency demand, as foreigners must purchase yen to pay for Japanese exports. Last month, the trade deficit narrowed to JPY -1.02 trillion, but this was much higher than the estimate of JPY -0.77 trillion. The markets are expecting the deficit to edge lower in August, with an estimate of JPY -0.99 trillion.
3. BOJ Governor Haruhiko Kuroda Speaks: Tuesday, 6:35. Kuroda will deliver remarks at a financial convention in Tokyo. A speech that is more hawkish than expected is bullish for the British pound.
4. All Industries Activity: Friday, 4:30. This is considered a minor release as much of the data has already been released. The indicator came in at – 0.4% last month, slightly lower than the estimate of -0.2%. The markets expecting a turnaround in the upcoming release, with the estimate standing at +0.4%.

* All times are GMT

USD/JPY Technical Analysis

Dollar/yen started the week at 105.18 and touched a low of 104.99. The pair then climbed sharply, hitting a high of 107.39, as resistance held firm at 107.68 (discussed last week). The yen closed the week at 107.28.

Live chart of USD/JPY:

Technical lines from top to bottom:

We start with resistance at 112.48. This line was important resistance in July 2004 and has remained intact since January 2008.

There is resistance at 110.68. This line represented a high point of a strong dollar rally in August 2008, which started around the key 100 level.

108.58 was last tested in June 2008.

107.68 has weakened as the pair trades above the 107 line. It was a key resistance line back in May 2005 and again in July 2008.

105.44 had held firm since December and has some breathing room as the pair trades at higher levels.

104.92 capped the pair around the turn of the year.

104.25 was an important resistance line back in August and continues to provide strong support.

It is followed by 1.0350, which was the bottom of the range after the big leap.

The round number of 103 has shown its strength in late July 2013.

In the narrower range, 102.30 is weak resistance.

102.00 is the final support line for now. It has supported the pair several times and remains an important line that the pair seemed to like very much – the “magnet”.

I am bullish on USD/JPY

The US economy continues to improve, while in Japan concerns grow that another sales tax hike could weigh heavily on the economy. A growing yield gap is favorable to the surging US dollar. The pair’s momentum is upward and we could see the yen continue to lose ground.

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Forex - Weekly outlook: September 15 - 19

The U.S. dollar ended its ninth successive weekly gain against a basket of other major currencies on Friday as expectations for an early hike in U.S. interest rates continued to bolster investor demand.

The dollar rallied to fresh six-year highs against the yen on Friday, with USD/JPY up 0.23% to 107.33 at the close. For the week, the pair added 2.05%.The US Dollar Index, which tracks the performance of the greenback versus a basket of six other major currencies, was last down 0.18% to 84.32, but ended the week with gains of 0.39%. It was the longest series of successive weekly gains in more than 17 years.

Expectations that the Federal Reserve is growing closer to raising interest rates continued to boost the dollar against the yen and the euro, with the Japanese and European central banks likely to stick to a looser monetary policy stance.

A study by the San Francisco Fed published on Monday indicated that central bank officials see rates rising sooner than markets expect.

The Fed was expected to cut its asset purchase program by another $10 billion at its upcoming policy meeting next week which would keep it on track for winding up the program in October, and to start raising interest rates sometime in mid-2015.

Data on Friday showing that U.S. retail sales rose in August and another report showing that consumer sentiment rose to a 14-month high in September underlined the view that the economic recovery is deepening.

The yen remained under pressure after Bank of Japan Governor Haruhiko Kuroda said Thursday that the bank would be prepared to immediately loosen monetary policy or implement other measures if its 2% inflation target becomes difficult to meet.

EUR/USD was up 0.33% to 1.2964 late Friday, holding above the 14-month trough of 1.2858 reached on Tuesday.

The single currency has remained under pressure since the European Central Bank unexpectedly cut rates to record lows on September 4 and unveiled new easing measures in a bid to shore up inflation in the euro area.

The pound also pushed higher against the dollar on Friday, with GBP/USD up 0.18% to 1.6267 in late trade. The pair fell to 10-month lows on Wednesday as the prospects of Scottish independence rattled financial markets.

However, uncertainty over what currency an independent Scotland would use, as well as concerns over how much of the U.K. national debt it would take on looked likely to cap sterling’s gains ahead of the September 18 referendum.

In the week ahead, investors will be focusing on the outcome of Wednesday’s Fed policy meeting. Fed Chair Janet Yellen was to hold a press conference following the meeting.

Market participants will also be closely watching the outcome of Thursday’s independence referendum in Scotland.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, September 15

Markets in Japan are to remain closed for a national holiday.

Switzerland is to produce data on producer price inflation.

In the euro zone, Germany’s Bundesbank is to publish its monthly report.

The U.S. is to release reports on manufacturing activity in the Empire State and industrial production.

Tuesday, September 16

The Reserve Bank of Australia is to publish the minutes of its latest policy meeting, which contain valuable insights into economic conditions from the bank’s perspective.

The U.K. is to publish data on consumer price inflation, which comprises the majority of overall inflation.

The ZEW Institute is to release its closely watched report on German economic sentiment, a leading indicator of economic health.

Canada is to release data on manufacturing sales.

The U.S. is to produce data on producer price inflation.

Wednesday, September 17

New Zealand is to publish data on the current account.

The U.K. is to publish data on the change in the number of people employed and the unemployment rate, as well as data on average earnings. In addition, the Bank of England is to release the minutes of its latest policy meeting.

The euro zone is to release revised data on consumer price inflation.

The U.S. is to produce data on consumer prices. Later Wednesday, the Federal Reserve is to announce its federal funds rate and publish its rate statement. Fed Chair Janet Yellen is to hold a press conference following announcement.

Thursday, September 18

New Zealand is to publish data on gross domestic product, the broadest indicator of economic activity and the leading measure of the economy’s health.

Japan is to release data on the trade balance, the difference in value between imports and exports.

Switzerland is also to release a report on the trade balance. At the same time, the Swiss National Bank is to announce its libor rate and publish its monetary policy assessment.

The U.K. is to release data on retail sales, the government measure of consumer spending, which accounts for the majority of overall economic activity. Meanwhile, Scotland is to hold its independence referendum.

The U.S. is to produce a flurry of economic data, including reports on initial jobless claims, building permits, housing starts and manufacturing activity in the Philadelphia region.

Friday, September 19

Canada is to round up the week with data on consumer prices and wholesale sales.

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