GBP/USD Outlook December 3-7

GBP/USD was unchanged over the week, closing just above the 1.60 line, at 1.6011. The upcoming week  is quite busy, with 13  events. Here is an outlook of the upcoming events, and an updated technical analysis for GBP/USD.

UK data was generally positive last week,  with Preliminary Business Investment and CB  Realized Sales  easily exceeding the estimates. Despite the solid data, GBP/USD showed very little movement during the week.

Updates: Manufacturing PMI came in at 49.1 points, slightly better than the estimate of 48.1. The key index has not cracked the 50 point level since May, pointing to continued contraction in the UK manufacturing sector. BRC Retail Sales Monitor improved last month, posting a gain of 0.4%.  Construction PMI disappointed, as it dipped below the 50 point line, posting a reading of 49.3 points. The markets had   expected very modest growth this month, with an estimate of 50.7. Services PMI will be released on Wednesday. GBP/USD is steady, as the pair was trading at 1.6127. BRC Shop Price Index rose 1.5% for the second straight month. Services PMI disappointed, coming in at 50.2 points. The estimate stood at 51.1 points. The government presented its Annual Autumn Forecast Statement to the House of Commons. In the report, the Office for Budget Responsibility predicts a contraction of 0.1% in 2012, revising its forecast from 0.8%   growth which it previously forecast. The Chancellor stated that he plans to extend austerity measures until 2017-18, due to the government’s difficult fiscal situation. Halifax HPI rose 1.0%,   beating the forecast of 0.2%. The Trade Balance deficit widened to -9.5 billion pounds, higher than the estimate of -8.7B. The BOE had no surprises, maintaining QE at 375 billion pounds and the Official Bank Rate at 0.50%, as expected. Friday’s key release is Manufacturing Production. GBP/USD is steady, as the pair was trading at 1.6117.

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

1. Manufacturing PMI: Monday, 9:30. Manufacturing PMI has been stuck below the 50 point level since May, indicating continuing contraction in the UK manufacturing sector. The estimate for the December reading stands at 48. 1 points.
2. BRC Retail Sales Monitor: Tuesday, 00:01.  BRC Retail Sales Monitor  precedes the government retail sales release by about 10 days.This consumer indicator disappointed last month, declining by 0.1%.
3. Halifax HPI: Tuesday, 4th-7th. The housing inflation indicator has posted four consecutive declines, indicating weakness in the UK housing sector. The markets are expecting a stronger December reading, with an estimate of a modest 0.2% gain.
4. Construction PMI:  Tuesday, 9:30. Last month, this key release pushed above the important 50 point level, indicating slight expansion in the  UK construction sector. This followed  two straight readings below 50. The markets are expecting that the upcoming release will also be slightly above the 50 line.
5. BRC Shop Price  Index: Wednesday, 00:01. This retail inflation index jumped 1.5% last month, a six-month high. The markets will be hoping for another strong reading in the December release.
6. Services PMI: Wednesday, 9:30. Services PMI has been above the 50 point level throughout 2012, indicating growth in the UK services industry. The markets are expecting that this month’s reading will be slightly over the 50 line.
7. Autumn Forecast Statement: Wednesday, 12:30. This report is published on an annual basis. The report looks at the government’s budget for the coming year, including projected spending and income levels.
8. Trade Balance: Thursday, 9:30. The Trade Balance deficit came in at -8.4 billion pounds, which was slightly below the forecast. The markets are expecting the upcoming release to show a slightly higher deficit.
9. Asset Purchase Facility: Thursday, 12:00. QE has been steady at 375 billion pounds since July. The markets are expecting that the BOE will maintain this level in the December release.
10. Official Bank Rate: Thursday, 12:00. The BOE’s key interest rate has been pegged at 0.50% since early 2009. No change is expected in the upcoming release.
11. Manufacturing Production: Friday, 9:30. This key release has shown some fluctuation, with the result that market estimates often prove to be off the mark. The estimate for the December reading is a modest  decline of 0.2%.
12. Consumer Inflation Expectations: Friday, 9:30. This indicator is released each quarter, and is used by analysts to help predict actual inflation figures. The previous reading posted a gain of 3.2%, its lowest reading since 2009.
13. NIESR GDP Estimate: Friday, 15:00. The GDP estimate is released each month. It helps analysts predict the official GDP numbers, which are released on a quarterly basis. The indicator posted a gain of 0.5% in the November release.

*All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.6030, and touched a low of 1.5962. The pair then rebounded, reaching a high of 1.6062, briefly moving above resistance at 1.6060 (discussed last week). GBP/USD closed the week at 1.6011.

Technical lines from top to bottom:

We start with resistance at the round number of 1.66. Next, there is resistance at 1.6475. This line has held firm since August 2011. This is followed by resistance at 1.6343. This line was last breached when the pound dropped sharply in August 2011. We next encounter resistance at 1.6247. Below, 1.6122 is providing weak resistance. This line has held firm throughout since the beginning of November. Next, there is resistance at 1.6060. This line was briefly breached, but continues to provide weak resistance. Look for it to be further tested if the pound improves.

GBP/USD  continues to receive  weak support at 1.5992. The pair broke through this line as it lost some ground,  before it  bounced back above the 1.60 line. This is followed by 1.5930.  Next, there is strong  support at 1.5850. This is followed by 1.5750, a support line  which has  held firm since August. Below, there is support at 1.5648.

We next encounter resistance at the round figure of 1.5600.  This is followed by  support at 1.5530. This line was last breached in August, when the pound started its impressive summer rally. The final support line for now is 1.5414, which has held firm since July.

I am bullish on GBP/USD.

The pound has  looked solid since mid-November,  gaining close to two cents  against the greenback  . Will the upward trend  continue? The US recovery continues to look bumpy, and the markets are now focused on the looming fiscal cliff crisis. In all likelihood, some kind of compromise will be reached in Washington, which will likely result in  investors displaying  more of an appetite for non-US purchases. This would bolster the pound and allow it to continue to move higher at the expense of the US dollar.

Further reading:

• For a broad view of all the week’s major events worldwide, read the USD outlook.
• For EUR/USD, check out the Euro to Dollar forecast.
• For the Japanese yen, read the USD/JPY forecast.
• For the Australian dollar (Aussie), check out the AUD to USD forecast.
• For USD/CAD (loonie), check out the Canadian dollar forecast.