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The  British pound  flexed some muscle but couldn’t consolidate the gains and showed little change on the week. The pair closed at 1.5632. This week’s key events  are  the PMI releases and the Autumn Forecast Statement.  Here is an outlook on the major events moving the  pound and an updated technical analysis for GBP/USD.

British GDP posted a respectable gain of 0.7% in Q3, matching the forecast. However, this was shy of the 0.9% gain recorded in Q2. The weaker reading reflects softer data across the UK economy in the third quarter. Earlier in the week, BoE Governor Mark Carney testified before Parliament’s Treasury Committee on Tuesday, and his remarks echoed the dovish Inflation Report  which showed inflation  is weakening. The large batch of US data before Thanksgiving was largely disappointing: durable goods orders were mixed,  unemployment claims missed the estimate,  and housing numbers softened. However, the dollar managed to hold its own despite the weak numbers.

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GBP/USD graph with support and resistance lines on it.

GBPUSDForecast Dec.1-5

 

  1. Manufacturing PMI:  Monday, 9:30. This key event helps gauge the health of the manufacturing sector. The index improved in October to 53.2 points,  ahead of the estimate of 51.5 points. The  estimate for the upcoming release is almost unchanged, at 53.1 points.
  2. Net Lending to Individuals: Monday, 9:30. Consumer credit is closely related to consumer spending, as an increase in borrowing usually translates into stronger consumer spending, which is critical for economic growth.
  3. Construction PMI:  Tuesday, 9:30. Construction PMI remains above the 60-point level, indicating strong expansion in the construction sector. The index softened last in October, falling to 61.4 points, short of the forecast of 63.5 points. The markets are not expecting much change in the December reading, with an estimate of 61.2 points.
  4. BRC Shop Price Index:  Wednesday, 00:01. This indicator measures consumer inflation in BRC stores. The index has  been pointing downwards and came in at -1.9% in the previous reading.
  5. Services  PMI:  Wednesday, 9:30. Services PMI broke above the 60-point level in August, but has lost ground since then. The index fell to 56.2 points in October, well short of the estimate of 58.5 points. The markets are expecting more of the same in the upcoming release, with a forecast of 5.6.6 points.
  6. Autumn Forecast Statement: Wednesday, 12:30. This release provides the government’s economic outlook and previews the upcoming budget. It is released annually  and should be treated by traders as a market-mover.
  7. Halifax HPI: 4th-7th. This housing inflation indicator is an important gauge of activity in the housing sector. The indicator disappointed with a reading of -0.4%, its first decline in four months. The estimate stood at +0.5%. Will the index bounce back into positive territory in the upcoming release?
  8. Official Bank Rate:  Thursday, 00:00. The BoE is expected to leave the interest rate unchanged at 0.50% . While two members have  already voted for a rate hike, the rest of the MPC remains wary of raising rates, especially with inflation weakening in recent readings.
  9. Asset Purchase Facility:  Thursday, 00:00. The asset-purchase facility  program  has  been pegged at  375 billion pounds since June 2012. No change is expected in the upcoming release.
  10. Consumer Inflation Expectations:  Friday, 9:30. The indicator is released each quarter. Analysts use the indicator to help gauge actual inflation. The Q2 reading showed a gain of 2.8%.

* All times are GMT

GBP/USD Technical Analysis

GBP/USD  opened the week at 1.5645  and touched a  high of 1.5825. The pair then  reversed  directions, dropping to 1.5614. GDP/USD closed at 1.5632, just above support at 1.5625 (discussed last week).

Live chart of GBP/USD:

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Technical  lines from top to bottom

We  begin with resistance at 1.6131. This line has  remained intact  since late October.

1.6006 is next. This line is just above the psychologically important 1.60 level. This is followed by 1.5909.

1.5746  was tested last week as the pair posted sharp gains before retracting.  This line was an important support level in January 2013.

1.5625 continues to see activity. It is currently a weak support level and could see action early in the week.

1.5539 is a strong support level.

1.5290 was a cushion in July 2013. It is the final support line for now.

I am  bearish on GBP/USD.

There wasn’t much holiday cheer from US numbers ahead of Thanksgiving, but the US remains on track for rate tightening in 2015.  In the UK, a rate hike is not imminent, as weaker inflation has given the BOE some breathing room to delay a rate move. Market sentiment remains high on the US economy, and the dollar could show some gains if this week’s numbers can meet or beat expectations.

In our latest podcast, we talk about holiday trading, run through the US situation, talk about the elections and the BOE and analyze China’s rate cut:

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Further reading: