Weekly Recap and Outlook for GBPUSD - 7/19/2010

Written by ForexTraders.com on July 19, 2010 at 3:37 PM ET

GBPUSD continued its upward trend last week after U.K. economic releases indicated that the British economy may be showing some signs of recovery. The week started with Cable trading lower after U.K. GDP was released showing an expansion of 0.3% as was widely anticipated. Also on Monday, the U.K. Current Account came out showing a deficit of -9.6B which was considerably higher than the deficit of -4.5B expected. Nevertheless, the previous number was revised upward to a surplus of 0.5B from a deficit of -1.7B. Monday's U.K. economic releases also included the RICS House Price Balance which printed at 9% versus a consensus of 20% which indicates a decline in U.K. house prices, and the BRC Retail Sales Monitor which came out with a reading of 1.2% year on year, versus a previous reading of 0.8%.

On Tuesday, the rate began a sharp rally with U.K. Core CPI, which came out at 3.1% year on year versus a market consensus of 2.7%, and CPI, showing a 3.2% increase year on year, as was widely expected. The rate continued rallying on Wednesday as U.K. Employment numbers showed some improvement with the U.K. Claimant Count Change showing a decline of -20.8K in line with expectations while the U.K. Unemployment Rate declined to 7.8% versus 7.9% expected.

Thursday saw Cable add to its gains after dovish comments from the U.S. FOMC Meeting Minutes for June, released Wednesday afternoon. On Friday, Cable made its weekly high of 1.5470 before selling off on profit taking to close the week at 1.5298, up 1.5%.

Fundamental Outlook for GBPUSD

The primary market-moving economic data releases and policymaker speeches scheduled for this coming week in the United Kingdom and the United States are as follows:

United Kingdom:

The upcoming U.K. economic calendar heats up considerably has some important numbers due out, featuring the MPC Meeting minutes due out on Wednesday.

Monday starts the action with the release of the Rightmove HPI (last 0.3%m/m), and Tuesday is active with Preliminary Mortgage Approvals (52K), Public Sector Net Borrowing (13.2B), Preliminary M4 Money Supply (-0.1% m/m) and CBI Industrial Order Expectations (-25).

Wednesday offers the highlighted MPC Meeting Minutes (vote: 1-0-7) that may shed some light onto the dissenting vote by MPC Member Andrew Sentance.

Thursday just has the important Retail Sales (0.5% m/m) data due out, while Friday ends the week with the key Preliminary GDP (0.6% q/q) number, as well as BBA Mortgage Approvals (37.0K) and the Index of Services (0.7% 3m/3m).

United States:

The calendar of economic data releases for the United States this week is considerably less active this week than last, although it does offer some interesting policymaker speeches, as well as important data for forex traders on the U.S. housing market. In terms of housing market data, the calendar features Tuesday's Building Permits and Thursday's Existing Home Sales releases.

The week commences on Monday with a speech by FOMC Member Duke scheduled in Virginia, as well as the release of the NAHB Housing Market Index (16).

Tuesday has the highlighted Building Permits (0.57M) data, as well as Housing Starts (0.58M) and testimony by FOMC Member Tarullo on Financial Regulation before the Senate Banking Committee scheduled in Washington, D.C.

Wednesday offers important testimony by Federal Reserve Chairman Ben Bernanke on the semi-annual monetary policy report before the Senate Banking Committee, in Washington, D.C.

Thursday is especially active with Initial Jobless Claims (453K), the highlighted Existing Home Sales (5.15M) data, the CB Leading Index (-0.3% m/m), the HPI (-0.3% m/m), plus more testimony by Fed Chairman Bernanke on the monetary policy report, this time before the House Financial Services Committee, in Washington, D.C.

Thursday ends the week since Friday has nothing notable due out.

Technical Outlook for GBPUSD

On the technical front, GBPUSD continued trading upward for most of last week, making yet another new high within its short term corrective rising channel at 1.5470 before trading off to close the week on Friday at 1.5298, up 1.5% overall.

This new recent high came just ahead of where the upper trend line shows resistance at 1.5520, while the lower trend line of this pattern provides rising support for the rate at 1.5047. This lower line is important to watch for a break down in Cable that may signal the end of the upward correction.

Also, the upward move in GBPUSD seems to be retracing the decline from 1.5521 seen on April 15th to the 1.4229 low of May 20th. Since the key 61.8% Fibonacci retracement level at 1.5027 has already been bested, this puts the 1.5521 100% retracement level in play.

Furthermore, the corrective upward move that originated at the 1.4229 low has generally remained fairly orderly, and the recent high at 1.5470 has provoked yet another new high in the 14-day RSI at 69, just below overbought territory. This bested the previous high and so confirms the existing near term up trend in this indicator.

Interestingly, the rate is now approaching the level of its 200-day Moving Average that now comes in at 1.5585 and remains downward sloping, although it is now noticeably flattening out. This level should provide resistance, but a sustained break could neutralize the medium term outlook for GBPUSD from bearish.

Resistance to the topside for GBPUSD shows in the 1.5470 to 1.5521 region (just above the psychological 1.5500 level) and the 1.5574 to 1.5579 region, as well as above that at 1.5764. Support is indicated at 1.5277, 1.4947/64 and at 1.4872.

Overall, this scenario continues to confirm short term corrective upwards trend within a medium term bearish outlook for GBPUSD that would make selling current levels attractive for longer term players.

The short term picture, while currently bullish for the rate, would be reversed on a confirmed downside break of rising channel support now drawn at 1.5047. Also, strong resistance at 1.5520 may well provoke a reaction lower, so consider taking profits on longs ahead of that level.

Figure 1: Daily candlestick chart of GBPUSD showing its 200-day MA in red, Bollinger Bands in green, Fibonacci Retracement levels in royal blue, Trend Lines in purple and the 14-day RSI in the indicator box in pale blue.