GBP/USD Outlook August 13, 2012

GBP/USD had a quiet week, and was almost unchanged, closing at 1.5682. Highlights of the upcoming week include CPI, Claimant Count Change and Retail Sales. Here is an outlook of the upcoming events, and an updated technical analysis for GBP/USD.

Economic releases in both the US and the UK were by and large within expectations, with no major surprises. GBP/USD traded in a narrow range, and showed almost no change at the end of the trading week.

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

1. RICS House Price Balance:Monday, 23:01. This housing indicator looked awful in July, declining by some 22%. A similar decline is predicted for August, reflective of a very weak hous ing sector.
2. CPI: Tuesday, 8:30. This key inflation index rose 2.4% in July. A similar increase is expected in August.
3. RPI: Tuesday, 8:30. This inflation index, which includes housing costs jumped 2.8% in July. The markets are expecting a similar reading in August.
4. Claimant Count Change: Wednesday, 8:30. There was a drop in the number of unemployed people in July, as the indicator posted a figure of 6.1 thousand. The markets are not anticipating much change in the August release.
5. MPC Meeting Minutes: Wednesday, 8:30. The markets will be carefully analyzing these minutes for the breakdown of the votes for both the interest rate and QE decisions by the central bank’s Monetary Policy Committee. A voting pattern which is more hawkish than forecast is bullish for the pound.
6. Unemployment Rate: Wednesday, 8:30. The Unemployment Rate edged down to 8.1% in July, and the estimate for the August remains the same.
7. Retail Sales: Thursday, 8:30. This key consumer indicator was a disappointment last month, posting a weak 0.1% gain. The markets are predicting the same figure for the August release.

*All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.5652, and quickly fell to the week’s low of 1.5546. The resistance line of 1.5521 (discussed last week) held firm as the pound sagged. The pair then retraced, touching a high of 1.5701, and closed at 1.5682.

Technical lines from top to bottom:

We begin with resistance at 1.6122, which has not been tested since May. The next line of resistance is at 1.6060. Below, is the line of 1.5992, protecting the important 1.60 level. This is followed by resistance at 1.5930. The next resistance line is just above the 1.58 line, at 1.5805. This line was last breached in late May, as the pound went on a sharp slide. Close by, there is resistance at 1.5750.

Next is 1.5648 which has been alternating between support and resistance roles. Currently, it is providing the pair with weak support. Look for this line to be tested if the pound weakens. This is followed by support at the round figure of 1.5600. Next, there is support at 1.5521, which held firm as the pair dropped at the start of last week.

Below, the pair is receiving support at 1.5415, which was last tested in mid-July. The next support level is at 1.5229. This is followed by 1.5124, which has not been tested since July 2010. The final line for now is support at 1.5054, a line which has held firm since June 2010.

I am neutral on GBP/USD.

GBP/USD has been marked by choppiness in July and August, unable to sustain a breakout in either direction. With the British economy is in deep trouble, and almost daily turmoil in Europe, the US dollar does offer investors a safe haven. At the same time, US economic releases have not impressed, and the dollar has shown its vulnerability against the major currencies. This could continue if the economic news out the the US is not to the market’s liking.