GBP to USD Weekly Forecast: Bulls Eye $1.27 on the UK CPI Report

It is a busy week for the GBP/USD, with UK economic indicators, the Bank of England, and the Chinese economy in focus.

Employment figures will draw interest on Tuesday. While claimant counts will influence, we expect average earnings and the unemployment rate to have more influence. Economists forecast the UK unemployment rate to hold steady in February and for a 9,500 fall in claimant counts in March, supporting stable labor market conditions.

On Wednesday, the UK CPI Report will likely be the main report of the week. Hotter-than-forecasted inflation numbers could pressure the Bank of England into a more hawkish policy stance. Economists forecast the UK annual inflation rate to soften from 10.4% to 9.8% in March.

While wage growth and inflation remain focal points, retail sales and services PMI numbers on Friday would need to beat forecasts to support a more hawkish policy outlook. Economists forecast the Services PMI to rise from 52.9 to 53.0. However, economists expect retail sales to fall by 0.5%.

With the UK economic calendar on the busy side, BoE commentary will also move the dial.

Monetary Policy Committee members Sir Jon Cunliffe (Mon), Catherine Mann (Wed), and Silvana Tenreyro (Thurs) will deliver speeches.

GBP/USD Technical Indicators

The GBP/USD needs to move through the $1.2424 pivot to target the First Major Resistance Level (R1) at $1.2525 and last week’s high of $1.25465. A return to $1.25 would signal a bullish week.

However, average earnings, the UK CPI Report, and the BoE would need to support a breakout week ahead of the private sector PMIs and retail sales figures on Friday.

In case of a breakout session, the Pound would likely test resistance at the Second Major Resistance Level (R2) at $1.2637 and resistance at $1.27. The Third Major Resistance Level (R3) sits at $1.2839.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.2322 in play. However, barring a risk-off-fueled sell-off, the GBP/USD pair should avoid sub-$1.22. The Second Major Support Level (S2) at $1.2232 should limit the downside.

The Third Major Support Level (S3) sits at $1.2030.

Looking at the EMAs and the 4-hourly chart, the EMAs send mixed signals. The GBP/USD sits above the 100-day EMA, currently at $1.23831. The 50-day EMA narrowed to the 100-day EMA, while the 100-day EMA widened from the 200-day EMA, delivering mixed signals.

A move through the 50-day EMA ($1.24419) would support a breakout from R1 ($1.2525) to give the bulls a run at R2 ($1.2637) and $1.27. However, a fall through the 100-day EMA ($1.23831) would bring S1 ($1.2322) and the 200-day EMA (1.22957) into play.

The US Week Ahead

After a quiet first half of the week, the weekly jobless claims and Philly Fed Manufacturing Index numbers will influence on Thursday. After a larger-than-expected rise in jobless claims last week, another increase would ring recession alarm bells.

On Friday, prelim private sector PMIs for April will also impact market risk sentiment. We expect the services PMI to garner more interest, though investors should consider the sub-components, including prices, employment, and new orders.

While the numbers will influence, we expect FOMC member chatter to dictate demand for the dollar.

From elsewhere, economic data from China will also influence the appetite for the Pound. On Tuesday, Q1 GDP, retail sales, industrial production, and fixed asset investment figures will draw interest.