The US dollar continued to chip away at the pound last week, as GBP/USD dropped close to two cents. This week’s major events include PMIs and the Official Bank Rate, the first from new BOE Governor Mark Carney. Here is an outlook of the events and an updated technical analysis for GBP/USD.
It was a gloomy week in the UK. British Current Account, the only British key event last week, was a major disappointment, as it posted a larger deficit than forecast. The pound got no help as the British government announced deep spending cuts as the economy continues to struggle. Meanwhile, US releases were mostly positive last week, helping the dollar post more gains at the expense of the pound.
GBP/USD tested lows at 1.5128, influenced by the crisis in Portugal and general risk aversion. Nevertheless, it seems to hold on relatively well in comparison with other currencies.
The BOE released its quarterly Credit Conditions Survey. The report was optimistic and predicts an increased demand for household and business loans in Q3.
Housing Equity Withdrawal fell to -8.8 billion pounds. Halifax HPI gained 0.6%, beating the estimate of 0.4%.
GBP/USD graph with support and resistance lines on it. Click to enlarge:
Manufacturing PMI: Monday, 8:30. Last month the Manufacturing and other PMIs looked solid, which helped the pound. Manufacturing PMI rose to 51.3 points in the June reading and surpassed the estimate of 50.3 points. This was the first time the indicator was above 50, which indicates expansion, since the February release. The markets are expecting the same reading of 51.3 points in the upcoming release.
Net Lending to Individuals: Monday, 8:30. This indicator is closely connected with consumer confidence and spending, as increased lending is a sign of more spending, which is critical for economic growth. Net Lending to Individuals rose nicely last month to 1.4 billion pounds, well above the estimate of 0.9 billion. The estimate for the July reading is unchanged, at 1.4 billion pounds.
Halifax HPI: Tuesday, 2nd-4th. This housing inflation index is an important gauge of activity in the UK housing market. The index dropped from 1.1% to 0.4% in the June release, but managed to beat the estimate of 0.2%. The estimate for the July reading stands at 0.4%.
Construction PMI: Tuesday, 8:30. This PMI crossed above the 50-point level in June, for the fist time since November 2012. Is the construction industry on the road to recovery, or was last month’s reading just a blip? The markets are betting on the former, as the estimate stands at 51.3 points.
10-year Bond Auction: Tuesday, Tentative. Last month’s auction produced the highest yield for UK 10-year bonds since December 2011, with an average yield of 2.37%. This was up from the previous release, which came in at 1.73%. Analysts keep track of bond prices to gauge investor confidence, and higher bond prices could help the flagging pound.
BRC Shop Price Index: Tuesday, 23:01. This inflation index looks at the change in prices in stores belonging to the BRC (British Retail Consortium). It preempts the official CPI release. The index disappointed in the June reading, posting a decline of -0.1.%. It was the first decline of the year. Will the index bounce back into positive territory this time around?
Services PMI: Wednesday, 8:30. Services PMI has been a bright spot, as it has remained above the 50-level throughout 2013. The index jumped from 52.9 points to 54.9 points in the June reading, and the estimate for July stands at 54.6. points.
BOE Credit Conditions Survey: Wednesday, 8:30. The Bank of England releases this report each quarter. The report examines both secured and unsecured loans to consumers and businesses, and is an important gauge of British consumer confidence and spending. An optimistic report is bullish for the pound.
Official Bank Rate: Thursday, 11:00. The BOE will set its new benchmark interest rate. The rate has been pegged at 0.50% since 2009, and no change is expected. However, the markets will be paying close attention, as this is the first release by the incoming BOE Governor, Mark Carney.
Asset Purchase Facility: Thursday, 11:00. The BOE will release its decision on its purchase of assets. The amount has stood at 375 billion pounds since July 2012, and no change is expected in the upcoming release.
Live chart of GBP/USD: [do action=”tradingviews” pair=”GBPUSD” interval=”60″/]
GBP/USD Technical Analysis
GBP/USD opened the week at 1.5387. The pair touched a high of 1.5477, but it was all downhill after that. GBP/USD dropped sharply, hitting a low of 1.5166. The pair bounced back above the 1.52 line and closed the week at 1.5210, as the support line of 1.5196 (discussed last week) remains in place.
Technicallines from top to bottom:
With the pound losing more ground, we begin at lower levels this week.
1.5804 continues to provide strong resistance. This line has held firm since February. Next is 1.5648, which has been providing resistance since the pound started a sharp drop in mid-June.
The next resistance line is at 1.5550, which saw activity last week. It has strengthened as the pair trades at lower levels.
1.5416 started the week as a weak resistance line. It was breached in the week as the GBP/USD pushed higher, but remained intact as the pair continued its sharp downward trend.
This is followed by 1.5258, which has reverted to a resistance role after providing support since late May. It is a weak line, and could see further action early this week.
GBP/USD is receiving weak support at 1.5196. This line was breached late in the week as the pair pushed below the 1.52 line, but remains intact as the pair bounced higher.
Next is 1.5110, protecting the 1.51 line. This line has remained intact since late May, when the pound posted an impressive rally that saw it climb above 1.57.
1.5000 is a critical support level. It has held steady since mid-March.
The next support level is at 1.4897, just below the round number of 1.49. The final support line for now is at 1.4781, which has not been tested since June 2010.
I remain bearish on GBP/USD.
The pound’s woes continue, as the currency has shed over five cents since mid-June. Will the downward trend continue? UK releases have not impressed, and the government has announced deep spending cuts as it desperately tries to right an economy in deep trouble. Meanwhile, US releases looked solid last week, and the US dollar is looking firm against the other major currencies, as talk of tapering QE continues.
Further reading:
For a broad view of all the week’s major events worldwide, read the USD outlook.
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.
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