Home GBP/USD Outlook Jan 28 – Feb 1

GBP/USD was down slightly this week, as the pair closed just below the 1.58 line, at  1.5795.  The pound has now shed 450 points against the US dollar since the beginning of the year. There are  only four events scheduled  in the upcoming week, with the highlight being Manufacturing PMI. Here is an outlook of the events and an updated technical analysis for GBP/USD.

Both the UK and the US produced mixed numbers this week, resulting in modest  losses for the pair. Both countries had strong employment numbers, but  British GDP recorded a  decline, while US housing numbers were well below expectations.

Updates: There are no UK economic releases until Wednesday. The pound has recovered slightly after testing the 1.57 line. GBP/USD was trading at 1.5734. Net Lending to Individuals rebounded sharply, posting a gain of 1.7 billion pounds. The estimate stood at 0.9 billion. M4 Money Supply climbed 0.7%, easily exceeding the estimate of 0.2%. Mortgage Approvals came in at 56 thousand, just above the forecast of 55 thousand. GfK  Consumer Confidence remains in deep negative territory, with a reading of -26 points. The estimate stood at -27 points. Nationwide HPI improved nicely to 0.5%, beating the forecast of 0.3%. Manufacturing PMI will be released on Friday. The pound continues to improve, as GBP/USD was trading at 1.5822

GBP/USD graph with support and resistance lines on it. Click to enlarge:     GBP USD Forecast Jan 28-Feb 1

  1. Net Lending To Individuals: Wednesday, 9:30. Increased  consumer debt  indicates that financial institutions are comfortable lending to consumers, and that consumers are borrowing more. The indicator has looked weak of late, posting two consecutive declines. The markets are expecting an improvement in the upcoming reading, with a forecast of a gain of 0.9 billion pounds.
  2. GfK Consumer Confidence: Thursday, 00:01. Consumer Confidence continues to be in the deep-freeze, with little optimism about the UK economy. The previous releases worsened by -29 points, and little change is expected in the January release.
  3.  Nationwide HPI: Thursday, 7:00. This housing inflation index posted very weak readings for most of 2012, pointing to very subdued activity in the UK housing market. The markets are expecting an improvement in the January release, with an estimate of a 0.3% gain.
  4. Manufacturing PMI: Friday, 9:30.The trading week wrap up with the highlight of the week. Manufacturing PMI is a key release, and an unexpected reading could impact on the movement of GBP/USD. The index surprised the markets in December by  crossing above the 50 point  level, for  the first  time since May. The estimate for January stands at 51.o points, which would indicate very slight expansion in the manufacturing industry.

*All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.5855. The pair quickly  reached a high of 1.5892, but then dropped all the way to 1.5746, briefly breaching  support at 1.5750 (discussed last week).  GBP recovered partially,  and closed the week  at 1.5795.

Technical lines from top to bottom:

We begin with resistance at 1.6343, which was breached immediately after the fiscal cliff agreement on New Year’s Day, but has remained intact since that time. The pound has been on a steep slide since that time. Next, there is resistance at 1.6247. This is followed by 1.6122. The pair easily broke through resistance at 1.6060 and 1.5992 earlier this month, as the pound was no match for the greenback.

Next, 1.5930 could not hold on, as the pair pushed below the 1.59 line. Below, 1.5850 started off the week as a weak line, but was breached and has now reverted to a resistance role.  The pound showed some improvement at the end of the week, so this line could see further activity if this upward trend can be sustained.

GBP/USD is receiving weak support at 1.5750. This line was breached  on  the pair’s downward push, but remained  intact at week’s end.  We encounter stronger support at 1.5648. Next is the line of 1.5516 has held steady since August of last year. This is followed by support at 1.5406, which has not been tested since July 2012. Below, there is support at 1.5361, which has held firm since June 2012. The pound started a rally at that time, which lasted until September. The final support level for now is at 1.5282.

I remain bearish on GBP/USD.

The pound continues to drop, although last week’s decline was less steep than we’ve seen recently. Still, the pound has plunged over four cents this month, and the downward trend could continue. Recent  reports from the World Bank and IMF both downgraded their forecasts for economic growth in the UK, and with mixed numbers out of the US, the pair could be  continue to find  itself in rough waters.

Further reading:

Kenny Fisher

Kenny Fisher

Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.