GBPUSD 30 day forecast

GBPUSD Research Report
Date 1/19/2014

This report is an attempt to make a 30-day forecast on the pound vs the dollar.

Big Picture for the USD
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The US economy is booming.
+ Current-dollar GDP increased at a 6.2% annual rate in the 3rd quarter, and real GDP increased at a 4.1% annual rate, so that implies inflation of about 2.1%.
+ The US deficit is still high at $680 billion for FY 2013, but dropped $409 billion from the previous year.  It is now only 4.1% of GDP.
+ The unemployment rate dropped to 6.7% in December from 7.0% in November.  However, this is based partially on manipulating the size of the labor source, which keeps dropping. People whose long-term unemployment benefits have expired are no longer considered to be unemployed.
+ The stock market is booming, and the Dow was up 23.6% last year. There must be some foreign money coming into the market. It is flat in 2014, however.  It should rise about 8-10% this year, with the next big crash coming in the fall of 2015, 7 years after the previous one.
+ The money supply (as measured by my M5 metric) increased only 3.5% in 2013, much lower than the stock market.
+ The price of gold dropped from about 1700/ounce to about 1200/ounce in 2013.
+ The Fed funds rate is still stuck in the zero to 0.25% range.
= All of this tends to show that the dollar strengthened considerably in 2013.

However, in the short-term, over the next 30 days, this trend seems to have stalled or reversed.
+ As mentioned, the stock market is flat in 2014, except for certain stocks (Merck, Visa).
+ The price of gold seems to have hit an absolute bottom of about 1200.  It is now about 1250 and is on an upward trend.  I expect this to continue for the next 30 days.

Big Picture for the GBP
======================
The British economy is booming.
+ It was in a triple-dip recession, but unemployment dropped to 7.6% in 3Q 2013, and this number is expected to decline to 7.0% by the end of 2014.
+ Annual sales are up 5.3% in December, the highest rate of growth since 2004.
+ The central bank is expected to hike rates in early 2015, ahead of the Fed.  This will strengthen the pound, but this won't happen for a year.
+ London real estate prices are booming and increased about 9% in 2013 and are expected to increase another 8.5% in 2014.  The mega rich from all over the world (Dubai, Russia, China, etc) invest in London real estate, seeing it as a sign of stability.
+ The British stock market (FTSE-100) increased about 12% in 2013.  The boom is expected to continue in 2014, with the FTSE breaking 7500.  This would be another 12% increase.  It is up about 1% already in January.
+ The price of gold dropped from about 1050/ounce to about 725/ounce in 2013.
+ The benchmark interest rate in the UK remains at 0.5%.
+ The UK deficit is about 100 billion pounds/year (6.9% of GDP), and is on a downward slope.
= All of this tends to show that the pound strengthened in 2013.

The price of gold seems to have hit an absolute bottom of about 725/ounce and is now on an upward trend.  It is currently at about 760.  So this shows a short-term weakening.

But overall, the British economy was slower to recover than the US economy over the past several years. The US may be near a peak in its current economic cycle, but the British economy is expected to grow faster in 2014.  So we could expect the pound to strengthen slightly (say 3%) against the dollar over the next 12 months.

Short-Term Forecast
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The GBP/USD closed on 1/17/2014 at 1.6442, and 1.6481 the previous week.  There is resistance at 1.6475, 1.6500, 1.6600, 1.6705 and then heavy resistance at 1.6990.

Support is at 1.6343, 1.6247, 1.6125, 1.6000, and 1.5893.

It opened on 1/1/2014 at 1.6542 and dropped to 1.6340 on 1/16, before recovering.

One analyst [1], predicts a 3 month range of 1.60 to 1.67.
1. http://www.poundsterlingforecast.com/2014/01/09/onward-and-upward-for-the-pound-actual-rate-predictions-2014/

A reasonable 30 forecast (for 2/18/14) would be a level slightly higher than Jan 1, say about 1.6570, but below the 1.6600 resistance.

I would wait until it drops below 1.6360 to buy (above the 1.6340 support, which happened on Jan 16 and 17) and then sell above 1.6470 (right below the 1.6475 resistance, which happened on Jan 2 and Jan 13).  This would provide a 110 pip window, with potential to go up another 100 points if the 1.6475 and 1.65 resistance is broken.