GBP/USD Outlook Nov 5-9

GBP/USD lost about 70 points on the week, as the pair closed at 1.6019. The upcoming week is very busy, with 11 events. Highlights include Services PMI, Manufacturing Production and the Official Bank Rate.  Here is an outlook of the upcoming events, and an updated technical analysis for GBP/USD.

UK data was a mixed bag last week. Manufacturing PMI was slightly below the estimate, but this was offset by Construction PMI, which pushed above the critical 50 point level for the first time since August. The pound made  some gains  against the greenback, but gave them all up at the end of the week as investors opted to stick with the safe-haven dollar, prior to the US elections on Tuesday.

Updates: BRC Retail Sales Monitor declined by 0.1%, compared to a 1.5% gain in October. Halifax HPI continues to fall, as it declined by 0.7%. The markets had expected a 0.5% gain. Manufacturing Production managed a 0.1% gain, below the estimate of 0.3%. Industrial Production dropped 1.7%, its sharpest decline in over a year. The estimate stood at a drop of 0.6%. The UK 10-year Bond Auction posted an average yield of 1.82%. This was a slight increase from the previous yield of 1.76%. NIESR GDP Estimate will be released later on Tuesday. The markets are hoping for another strong reading, as the previous release came in at a solid 0.8%. GBP/USD is steady, as the pair was trading at 1.5982. Obama is re-elected and the announcement is met with high volatility: GBP/USD rises well above 1.60 before falling to fresh lows. There were no surprises from the BOE on Thursday. QE remained at 375 billion pounds, and the central bank kept its key interest rate at 0.50%. Trade Balance will be released on Friday. The markets are expecting a lower deficit in the October release. The pound has strengthened, and is testing the 1.60 line. GBP/USD was trading at 1.5996.

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

1. Services PMI: Monday, 9:30.  Services PMI has looked good in 2012,  as it has stayed  above the 50 line throughout the year.  This indicates ongoing expansion in the UK services sector. The index posted a figure of 52.2 points last month, and a similar reading is expected in November.
2. BRC Retail Sales Monitor: Tuesday, 12:01. After a couple of sluggish releases in August and September, the indicator looked strong in October, jumping by 1.5%. The markets will be hoping for a repeat performance in the November release.
3. Halifax HPI: Tuesday, 6th-9th. This house inflation index has posted two straight declines, indicating weak activity in the housing sector. However, the markets are predicting some relief from the November release, with an estimate of a 0.5% increase.
4. Manufacturing Production: Tuesday, 9:30. This key indicator fell by 1.1%   last month, disappointing the markets. However, the markets are expecting a rebound in November, with a forecast of 0.3%.
5. 10-year Bond Auction: Tuesday, Tentative. The previous auction for 10-year bonds was held in October. The average yield came in at 1.76%, which was a slight drop from the September auction.
6. NIESR GDP  Estimate: Tuesday, 15:00. This monthly indicator is utilized by analysts to help predict GDP figures,  which  are released each quarter. The indicator jumped 0.9% in October, its highest gain in over two years. The markets will be hoping for another strong reading this month.
7. BRC Shop Price Index: Wednesday, 12:01. This consumer inflation index has  hovered around the 1.0% level  in recent releases.  The markets are not expecting any major changes  in  the November reading.
8. Trade Balance: Thursday, 9:30. The trade deficit ballooned last month, hitting 9.8 billion pounds. The forecast is calling for an improvement, with an estimate of a deficit of 9.1 billion.
9. Asset Purchase Facility: Thursday, 12:00. The QE indicator is released monthly. The  BOE has maintained the level of 375 billion pounds since July, and no change is expected in the upcoming release.
10. Official Bank Rate: Thursday, 12:00. This key interest rate has been pegged at 0.50% since 2009, and the BOE is expected to maintain this level in November as well.
11. CB Leading Index: Friday, 10:00. This composite index, based on 7 indicators, posted a modest gain of 0.2% in October. No major change is likely in the upcoming release.

*All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.6087, and touched a  high of 1.6175. However, the pair dropped sharply at the end of the week, falling very close to the 1.60 line, as it reached a low of 1.6006. The  support level of 1.5992 (discussed last week) continued to hold firm as the pound sagged.  GBP/USD closed the week at 1.6019.

Technical lines from top to bottom:

We  start with resistance at the round number of 1.66, which was last tested in August 2011. Below, there is resistance at 1.6475. This is followed by the 1.6343 line, which was last breached when the pound dropped sharply in September 2011. We next encounter resistance at 1.6247. Below, is the line of 1.6122, which continued to see action, as the pound showed some strength before retracting. Below, 1.6060 is now providing resistance, after providing weak support two weeks ago.

GBP/USD is receiving weak support at 1.5992, which held firm as the pair weakened. This line could see further action this week. Below is the line at 1.5930. This is followed by support at 1.5805, which has held firm since early September. We next find support at 1.5750.

This is followed by support at 1.5648, which saw a lot of action in August. Below, there is support at the round figure of 1.5600, which has held firm since early August. Next is the support line of 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 was last breached in July.

I am neutral on GBP/USD.

UK releases were mixed last week, and the markets are not expecting any dramatic improvements from the UK economy. The BOE will  make an announcement about QE and  its key  interest rate, but these are expected to remain the same. The big question mark remains the US presidential election on Tuesday. The race is extremely tight, although  President Obama  appears to have a  slight  edge. The outcome of the  election could have a significant impact on  the currency markets, making for a very interesting week.

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.