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GBP/USD showed little movement last week. The upcoming week has five events. Here is an outlook for the highlights and an updated technical analysis for GBP/USD.

It was a tale of two sectors for British PMIs. The Manufacturing PMI improved from 53.3 to 55.2, pointing to strong expansion. However, the Services PMI fell into contraction territory, from 52.3 to 45.8 points. There was grim news from the BoE, as the BoE Monetary Policy Report projected a contraction of 2% in the fourth quarter. This was followed by Finance Minister Sunak’s spending review, in which he said that the Office of Budget Responsibility had projected a GDP decline of 11.3%.

In the US, PMIs for October indicated stronger growth in the manufacturing and services sectors. Services PMI improved to 57.7, as the index accelerated for a seventh straight month. Manufacturing PMI climbed to 56.7, up significantly from 53.3 beforehand. Both PMIs were well into expansionary territory, which indicates that the economic recovery continues to gain traction. Unemployment claims climbed for a second straight week, with a reading of 778 thousand. This was much higher than the estimate of 732 thousand. Durable goods orders reports were mixed. The headline figure slowed to 1.3%, down from 1.9%. However, the core release climbed from 0.8% to 1.3%.

The week wrapped up with the FOMC minutes of the November policy meeting. The minutes showed that officials did not believe any changes were needed to the current bond-purchase scheme of $120 billion/month, they were of the opinion that “circumstances could shift to warrant such adjustments.”

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

  1. Net Lending to Individuals: Monday, 9:30. New credit issued to the private sector rose to GBP4.2 billion in October and the upswing is projected to continue, with an estimate of 4.7 billion in November.
  2. Manufacturing PMI: Tuesday, 9:30. Manufacturing slowed to 53.7 in October, but is expected to accelerate to 55.2 in November, which would indicate strong expansion. This would confirm the initial PMI reading.
  3. BRC Shop Price Index: Wednesday, 00:01. Inflation in BRC shops has posted declines since mid-2018, indicative of weak inflation. The consensus for November stands at -1.3%.
  4. Services PMI: Thursday, 9:30. Business activity has been weakening, as the PMI slowed to 51.4 in October, down from 56.1 beforehand. The downturn is expected to continue, with a forecast of 45.8, which would indicate contraction. This figure would confirm the initial PMI reading.
  5. Construction PMI: Friday, 9:30. The construction sector remains continues to show expansion, but slowed to 53.1 in October, down from 56.8 points. The PMI is expected to fall to 52.3 in November, which is downwardly revised from the initial reading of 53.1 points.

GBP/USD Technical Analysis

Technical lines from top to bottom:

We start with resistance at 1.3615.

1.3502 (mentioned last week), an important monthly line.

1.3340 is next.

1.3249 is the first line of support.

1.3145 is next.

1.3040 has held in support since early November.

1.2903 is protecting the round number of 1.2900. It is the final support level for now.

I am neutral on GBP/USD

The pound has taken advantage of prolonged dollar weakness, and has gained 2.7% in the month of November. Brexit could be the market mover this week – if an agreement is announced, the pound would likely rise. However, with time running out, investors will be nervous if a deal has still not been reached, and the pound could face pressure.

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GBP/USD Forecast and technical analysis ► preview of the main events that move the British Pound (Sterling), and especially pound/dollar (cable) during the week. Here are some general data. Scroll down for the latest GBP/USD outlook

Pound/dollar characteristics

GBP/USD is a major pair and certainly one of the first to emerge in modern trade. Its nickname “cable” originates from transmitting the exchange rate over the telegraph cable between the UK and the USA in the 19th century.

Above average volatility characterizes pound/greenback trading. In comparison to other major pairs, stop-loss orders are usually placed at wider margins.

Another tidbit of Sterling trading is that the pair “front-runs” economic publications from Great Britain. We usually see a significant market movement ahead of a release. Leaks, rumors, or sheer nervousness move GBP USD

The pound is a moderate “risk” currency. When the global mood is positive, GBP often gains against the dollar, albeit usually not at the same magnitude as commodity currencies. When markets become risk-averse, Sterling is on the retreat.

Brexit talks and GBP/USD

The biggest market mover of GBP/USD is the surprising decision of voters in the United Kingdom to leave the European Union. This unprecedented move shook up  Her Majesty’s currency. Brexit has sent Pound/USD to levels last seen in 1985 and despite the recovery, Sterling still suffers.

The economy did well in 2016, before and after the EU Referendum, but it slowed down in 2017. On the other hand, the weak pound pushed inflation above the rises in wages. The Bank of England decided to raise rates in November 2017 but clarified it is a one-off. Mark Carney and his colleagues foresee only two hikes in the next three years.

Brexit negotiations were deadlocked for quite some time, but fresh hopes help the pound stabilize. PM Theresa May may agree to pay the high “divorce bill” that the EU demands.

Latest weekly GBP/USD forecast:

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