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GBP/USD shot higher late last in the week, as the pound gained about 250 points against the US dollar. The pair closed the  week at 1.5473. This week’s highlights are PMI releases.  Here is an outlook of the events and an updated technical analysis for GBP/USD.

The pound   had a quiet week until Thursday, when the UK released a better than expected GDP for Q1.  This  enabled the pound to post a rally late in the week.  The markets were pleased as the key release climbed 0.3%, beating the estimate of 0.1%. As well, GDP rebounded nicely from Q4, which declined by 0.3%.

Updates: GfK Consumer Confidence continues to look weak, as the indicator posted a reading of -27 points. Net Lending to Individuals came in at 0.9 billion pounds, matching the forecast. M4 Money Supply declined 0.9%. The estimate stood at 0.4%. Mortgage Approvals came in at 54 thousand, just above the estimate of 53 thousand. GBP/USD was trading quietly at 1.5487. Nationwide HPI declined by 0.1%, surprising the markets which had expected a 0.3% gain. Manufacturing PMI rose to 49.8 points, easily beating the estimate of 48.6 points. MPC Member Ben Broadbent spoke in London. Construction PMI was up sharply, hitting 49.4 points. The estimate stood at 48.1 points. GBP/USD was steady, as the pair was trading at 1.5550.

GBP/USD graph with support and resistance lines on it. Click to enlarge:GBP USD Forecast Apr 29-May3

 

  1. GfK Consumer Confidence:  Monday, 23:01. This indicator has been mired deep in negative territory, indicating weak consumer confidence in the UK economy. This has hurt economic activity, as weak consumer confidence means  decreased  consumer spending. No change is expected in the  April release.
  2. Net Lending to Individuals: Tuesday, 8:30. This indicator is an important measure of consumer confidence and spending, as consumers will take more loans if they are comfortable spending money. The indicator rose sharply in the previous reading to 1.5 billion pounds, well above the estimate of 0.9 billion pounds. The forecast for the upcoming release is lower, at 1.3 billion pounds.
  3. Nationwide HPI: Wednesday, 6:00. This release is a leading indicator of  activity in the  housing industry. The index fell to 0.0% in March, missing the estimate of 0.2%. The markets are expecting an improvement in April, with an estimate of a 0.4% gain.
  4. Manufacturing PMI: Wednesday, 8:30. This index is based on a survey of purchasing managers in the manufacturing industry. The index has been below the 50-point level for the past two months, indicating contraction in the manufacturing sector. The markets are not anticipating any significant change in the upcoming release.
  5. Construction PMI: Thursday, 8:30. Construction PMI last posted a reading above the 50 level in November 2012. This indicates ongoing contraction in the UK construction industry. The markets are expecting another sub-50 performance, with an estimate of 48.1 points. Will the index surprise the markets and beat the estimate?
  6. Services PMI: Friday, 8:30. This PMI has been solid in recent readings, and the previous release of 52.4 points was the index’s best showing since October 2012. The markets are expecting a similar reading in the upcoming release.

 

GBP/USD Technical Analysis

GBP/USD opened the week at 1.5224. The pair  dropped to a low of 1.5196, as support at 1.5189 (discussed last week) remained firm.  The pair  then roared back, touching a high of 1.5499, and closing the week at 1.5473.

Technical lines from top to bottom:

We  begin with resistance at  1.5875. This line has remained intact since early February. This is followed by 1.5750. This resistance line saw a lot of activity in the first half of February, before the pound began a dive which lasted until mid-March. The next line of resistance is at 1.5648. Below, there is resistance at 1.5560. This  line has remained in place since mid-February. This is followed by resistance at 1.5484.

GBP/USD is receiving support at 1.5416. This line had served as support since early February, but fell as the pound shot upwards late in the week. Below, there is support at 1.5258. Next, we encounter support at 1.5189.  This line held firm as the pair dipped lower early in the week. Below, there  is a support line at 1.5061,   which was tested in the first week of April.  This is followed by 1.5010, protecting the all important 1.50 level. We next encounter support at 1.4896, just below the round number of 1.49. The final support line for now is at 1.4765, which has remained intact since June 2010.

I remain bearish on GBP/USD.

The markets remain  downbeat  on  the  British economy, and this was underscored by the Fitch Rating Agency downgrading the UK, citing a weaker economic and fiscal outlook in the UK. Weak data out of the UK could push the pound lower, especially a weak GDP release.

Further reading: