Posted: 13 Sep 2009 02:41 AM PDT

The dollar’s collapse reached the Pound very late in the week, sending it unconvincingly above the huge technical barrier of 1.6660. This week features inflation and employment figures as well as retail sales and many other indicators that will shape the direction of Pound. Here’s an outlook for the busy week in Britain, and an updated technical analysis.

GBP/USD forex chart with support and resistance lines:

Last week’s rate statement didn’t include an expansion of the Quantitative Easing program, and this helped the Pound push forward, after it stayed behind. This week has more indicators, and they’re scattered nicely along the week:

RICS House Price Balance: This release was delayed from last week, and is due on Monday at 23:00 GMT. RICS publishes the percentage of property surveyors reporting a price movement. This indicator hasn't been positive in over two years. In the past 5 months, this figure was better than early expectations, reaching -8.1% last time. An almost insignificant drop of 0.1% is expected this time. If it turns positive, it'll be a boost for the British Pound.
CPI: British prices haven’t suffered like European ones, but are still slowing. After last month’s surprising rise of 1.8% (annually adjusted), the upcoming release is expected to stand only on 1.4%. Core CPI is also expected to slow from 1.8% to 1.6%. Published on Tuesday at 8:30 GMT.
RPI: Together with the CPI, RPI is released. The Retail Price Index is of interest as well, and a surprise here can overshadow the CPI. RPI fell for five consecutive months, and this is somewhat alarming for British policymakers. It’s expected to continue the negative trend, and fall by 1.5%.
Inflation Report Hearings: Just 15 minutes after the CPI and RPI releases, on Tuesday at 8:45 GMT, Mervyn King and some of his associates in the BoE will begin testifying in front of the British parliament. The long session usually includes comments about the currency markets, something that can sure shake the Pound.
Claimant Count Change: The most important British employment figure is due on Wednesday at 8:30 GMT. The number of jobless claims in the UK is on the rise for almost a year and a half. In the last two months, the number has been around 24K. This time it’s predicted to rise by about the same number, 24.6K. This early jobless indicator is very important for GBP/USD.
Unemployment Rate: Contrary to the Claimant Count Change, this figure is lagging by a month. Despite the late release, this figure is quoted by the media, and has serious impact on policymakers. British Unemployment Rate has been on the rise, and is expected to continue rising, up to 8% from last month’s 7.8%.
Average Earnings Index: Published with the previous tow employment figures, this figure shows the inflation implications of the employment figures. After rising by 2.5% last time, it’s expected to rise by 2.1% this time.
Retail Sales: Another major release is expected on Thursday at 8:30 GMT. Like in any other country, this figure is very important. In the past two months, British retail sales have risen beyond expectations. After a 0.4% rise last month, a rise of 0.3% is predicted this time.
Consumer Inflation Expectations: Published with the Retail Sales, this survey of British consumers checks out their inflation expectations for the next year. This number has been floating between 2% to 3% in recent months, and isn’t expected to change dramatically this time.
CBI Industrial Order Expectations: The confederation of British Industry surveys about 550 manufacturers and checks their future expectations. A negative figure, meaning expectations for a declining volume of orders, has been seen in over a year. Contrary to many other British figures, this number hasn’t shown improvement, and fell short of expectations in the last 8 months. After hitting -54 it’s expected to rise to -49 this time. Published on Thursday at 10:00 GMT.
Public Sector Net Borrowing: The last British indicator is due on Friday at 8:30 GMT. This number reflects the amount of money that the government borrows from the public. 6 months of budget deficit will probably continue, with net borrowing expected to rise from 8 to 17.9 billion.

Retail Sales and CPI are also published in the US this week, and will impact GBP/USD, but this crowded week of British indicators keeps the limelight on the UK.

GBP/USD Technical Analysis

Was there a breakout or not? This is the big question. After I wrote that the Pound is still behind, even after the second wave of dollar weakness, it did rise above the strong resistance line of 1.6660 on Thursday and even reached a nice high level of 1.6741 on Friday. But a convincing close, like the EUR/USD wasn’t achieved.

GBP/USD closed at 1.6663, at the line. The breakout of AUD/USD last Friday was small, yet reliable. AUD/USD continued the trend on Monday. But when we look at the Pound, it’s a different story. It isn’t that strong…

I remain unconvinced that this was a real break, and I believe that 1.6660 will continue to cap GBP/USD. If I’m correct, the next major support line is only at 1.60.

But I may well be wrong, and the dollar’s fall may sweep the Pound as well. Looking up, 1.7040, the peak of August’s rise is the next resistance line, and 1.74 is far out.

The direction of the Pound remains a riddle to me. Mohammed Isah supplies an interesting technical analysis for the Pound.

Further reading:

For a broad overview of this week’s events, read the Forex Weekly Outlook.
For a look on the Euro, read the EUR/USD Outlook.

EUR/USD Outlook – September 14-18 2009

Posted: 13 Sep 2009 01:40 AM PDT

It finally happened – EUR/USD broke out of range and closed the week significantly higher. This week’s German ZEW Economic Sentiment and 6 other figures will impact the Euro. Here’s an outlook for this week’s key events in Europe, and an updated technical analysis for EUR/USD.

EUR/USD forex graph.

Last week, the Euro moved mostly on the dollar’s weakness, in two waves, rather than on good data, such as the German Factory Orders. Let’s see what’s up this week:

Industrial Production: The industrial production for the whole continent is published after France and Germany, but can still bring serious surprises. Last month’s figure disappointed by falling 0.6%, when a rise of 0.3% was expected. This month pessimism is back, and the number is expected to fall again, by 0.3%. Published on Monday at 9:00 GMT.
French CPI: France releases the CPI after Germany, so only a big surprise can have an impact. After Germany posted a surprising rise in prices, France is also expected to do so, and show a rise of 0.4% in prices. Published on Tuesday at 6:45 GMT.
German ZEW Economic Sentiment: 500 German industrial investors are surveyed in this very important survey. This survey showed great optimism last month and rose to 56.1 points, much higher than expected. It’s now expected to continue up to 59.8 points, and push EUR/USD higher. Published on Tuesday at 9:00 GMT. At the same time, the all-European ZEW Economic Sentiment is also released. It’s expected to rise from 54.9 to 57.8 points. Since the ZEW is a German institute and Germany leads Europe in the recovery, the German number is more important.
CPI: Consumer Price Index for the all of Europe is still expected to show deflation. Prices are expected to fall by 0.2% (annually adjusted). Also the Core CPI figure is predicted to be low, declining from 1.3% to 1.2%. Prices weigh on the Euro, since the interest rate isn’t expected to rise in the near future. Published on Wednesday at 9:00 GMT.
Trade Balance: European Trade Balance is published after the main economies do that, but still has an impact. The surplus is expected to grow from 1 billion to 1.2 billion. France and Germany lean on exports. Published on Thursday at 9:00 GMT.
German PPI: Inflation figures continue to draw attention. German Producer Price Index fell badly last time – by 1.5% last month. This time it’s expected to get back to normal levels of change, and rise by 0.1%, similar to the changes in previous months.
Current Account: This figure is important mostly for seeing the cash flow into the continent. The deficit in the current account was triple the expectations last month, standing on 5.3 billion. This time it’s expected to squeeze back to 4.3 billion. Published on Friday at 8:00 GMT.

EUR/USD will naturally move by American figures as well with CPI and Retail Sales being the most important ones.

EUR/USD Technical Analysis

After I’ve complained again about the range trading in last week’s EUR/USD Outlook, the big breakout on Tuesday sent the EUR/USD to new highs. Although the break was small at the beginning, a second wave sent the EUR/USD to a peak of 1.4634, almost 200 pips above the resistance line. It finally closed at 1.4569, still convincing.

I’ve left the uptrend channels in the chart, although they’ve also been broken. Looking at horizontal lines, 1.4444 now serves as support. After EUR/USD closed above this line, it shouldn’t test it soon.

Looking up, 1.4720 is the next resistance line. It was the swing peak in mid-December. The next major resistance line is 1.4908. It served as a peak in August 2008, as well as several times at the beginning of 2008.

Will the EUR/USD adopt a trading range of 1.4444-1.4720? Or will it continue to move?

Further reading:

For a broad overview of this week’s events, read the Forex Weekly Outlook.
For the British Pound, read the GBP/USD Outlook.

Forex Weekly Outlook – September 14-18 2009

Posted: 12 Sep 2009 06:39 AM PDT

After the dollar’s collapse last week, this week is full with American indicators. Rate decisions are due in Japan and in Switzerland. CPI and Retail Sales are published around the globe as well. Let’s go through the main events this week.

Monday, September 14th: For traders of the mighty kiwi, the week begins very early, on Sunday at 22:45 GMT with Retail Sales with are expected to rise.

Swiss PPI is published in the morning and is expected to remain stable. European Industrial Production is predicted to drop again, this time by 0.4%.

Near the end of the day, British RICS House Price Balance is expected to fall by 0.1% (delayed from last week).

Tuesday, September 15th: Australia starts the day with Monetary Policy Meeting Minutes and Housing Starts which are expected to turn positive.

British prices are expected to show a smaller rise. Following the CPI, Inflation Report Hearings will also shed some light on British inflation.

In Germany, the ZEW Economic Sentiment is expected to continue rising, pushing EUR/USD higher.

American Retail Sales (and Core Retail Sales) are expected to turn positive. Also prices, as reflected in the PPI, carry high expectations.

Also note the Empire State Manufacturing Index, Business Inventories and Ben Bernanke’s the all-important speech about the crisis.

Wednesday, September, 16th: Australia’s MI Leading Index starts the day down under.

Swiss Retail Sales are on the rise, and will probably do it again, this time by 1.1%. Swiss ZEW Economic Expectations will follow.

British Claimant Count Change is the first and foremost employment figure. It’s expected to remain stable. British Unemployment Rate is predicted to rise to 8%. Will GBP/USD stay behind on this as well?

European CPI isn’t expected to signal the end of deflation: it’s expected to fall again.

American CPI is expected to be different, and rise by 0.4% after falling last time. Core CPI is also expected to edge upwards.

TIC Long-Term Purchases, representing the cash flow in and out of the US, are expected to squeeze to 60 billion. Also in the US, Current Account, Capacity Utilization Rate and Industrial Production which is expected to rise by 0.5%.

Japan’s Tertiary Industry Activity is expected to continue rising, this time by 0.6%. Also not the Japanese BSI Manufacturing Index.

Thursday, September 17th: A new interest rate is due in Japan. No change is expected in the Overnight Call Rate, expected to remain at 0.1%. The focus will turn to the Monetary Policy Statement and the accompanying BOJ Press Conference.

British Retail Sales are predicted to rise by 0.5%, following last month’s rise. Also note CBI Industrial Order Expectations, which are still very low.

It’s Canada’s turn for the CPI release. Core CPI and CPI have been weak. Will it continue?

Switzerland’s quarterly rate decision is due. The Libor Rate is expected to stay at 0.25%. The SNB hasn’t hesitated to intervene in the markets. Will they do it again? We’ll know at the SNB Monetary Policy Assessment. USD/CHF is not far from parity.

In the US, Building Permits are expected to rise to 580K. Housing Starts are predicted to rise to 590K. American housing is off the bottom. Will it get better?

Unemployment Claims, which made a surprise last week, are expected to rise back to 562K. Also note the Philly Fed Manufacturing Index which is expected to rise to 8.1 points.

Friday, September 18th: German PPI is expected to rise by 0.1%, after posting a big drop last time. European Current Account is predicted to show a smaller deficit this time.

British Public Sector Net Borrowing is expected to grow, showing that the government lends more money.

Canadian Wholesale Sales close the week.

These are the major events for this week. I’ll later post more detailed coverages on specific currencies.

Note: There will be no forex weekly outlook next week, since I’ll be on holiday.