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GBP/USD Outlook January 30 – February 3

The British pound had another stellar week, climbing  almost 200 pips against the US dollar, and breaking the 1.57 level. The upcoming week has seven releases, including GDP. Here is an outlook for the upcoming events, and an updated technical analysis for GBP/USD.

The dollar weakened against most major currencies following Bernanke’s  announcement that  interest rates will likely remain near zero until late 2014. This was despite solid economic data coming out of the US.

Updates: Cable retread a bit and fell below 1.57 as fears gripped Europe again. British net lending to individuals squeezed to 0.4 billion ahead of more important data during the week. Troubles around Greece’s PSI deal weigh on cable once again. See how to trade the British manufacturing PMI with GBP/USD. Britain enjoyed a very strong manufacturing PMI. At 52.1, Britain might escape a second quarter of contraction and can see a delay in QE3. GBP/USD leaped above 1.58 and reached 1.5858 before easing.

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

  1. GfK Consumer Confidence:  Tuesday, 00:01.  This important consumer indicator was deep in negative territory throughout 2011, and the last reading came in at -31. The markets are not predicting much movement for this month.
  2. Net Lending to Individuals:  Tuesday, 09:30.  This indicator is useful for measuring consumer confidence, as consumers often take out loans for  big-ticket purchases.  The previous reading came in at 1.0B, exactly as predicted by the markets. The forecast for  January  calls for little change, with a prediction of 1.2B.
  3. Nationwide HPI:  Wednesday, 07:00. This indicator  provides important data about  inflation in the housing sector. The indicator contracted last month by 0.2%, its  lowest reading since September 2011.  The markets are predicting no change for this month’s reading.
  4. Manufacturing PMI:  Wednesday, 9:30. This indicator is bassed on a survey of purchasing managers, who are asked to rate business conditions in the manufacturing sector. The indicator has  recorded a modest rise since October 2011, although it  is still below the critical 50 level. The markets are forecasting a slight increase for the January reading, to 50.3.  Will the indicator  push into positive territory  this  month?
  5. Construction PMI:  Thursday, 09:30. This  diffusion index  is  gives an important snapshot of  acitivity in the construction industry.  The index  stayed slightly above the 50 level throughout 2011,  indicating  modest growth in the sector.  Little change is predicted for the reading this month.
  6. Halifax HPI:  Friday, publication time tentative. This index  meausures inflation in  the important housing sector. The last two readings  showed a decrease in inflation of -0.9%, and  it is unlikely that we will see any significant change in  these  figures  in  the January  release.
  7. Services PMI: Friday, 9:30. This indicator is based on a survey of purchasing managers in the service sector. The previous reading came in at 54.0, and little change is expected this month.

* All times are GMT.

GBP/USD Technical Analysis

Pound/dollar started  the week at 1.5543. After touching a low of 1.5517, it  climbed sharply  to  a  high of  1.5740, breaking through the strong resistance  line of 1.5629  (discussed last week) and closed the week at an  impressive 1.5723.

Technical levels from top to bottom

Resistance levels are quickly shattering as GBP/USD moves up higher and higher. We  begin  with  the line of 1.6365, a level of strong resistance. This is followed by the line of 1.6265, which was last tested in August of 2011. Next, 1.6132 has provided strong resistance since November. Below, there is resistance line of 1.6065. This is followed by strong resistance at the psychologically important figure of 1.60. The line of 1.59 acted as a support line back in October 2011, but is now in a resistance role. This is followed by 1.5775, a resistance line which was repeatedly tested last month. The round number of 1.57  was a weak resistance line, and was breached again last week.

The round number of 1.55 continues to provide weak support to the surging pound. Next, 1.5469 has been a weak line for much of January, and is currently in a support role. The round number  of 1.54, which served as strong support in November and December of 2011,  is again  providing support to the pair.  Below, 1.5360 is a weak support level. There is further weak support at 1.5279.  Next there is support at the round number of 1.52,  followed by  the strong support at 1.5120. The final line for now the psychologically important level of 1.50.

I remain  neutral on GBP/USD.

GBP/USD had another  banner week,  even though  economic fundamentals clearly favor the US over the UK. Traders may feel  confident jumping on the  pound bandwagon, but a correction to the surging pound may not be far off.

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.