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The  British pound  had a tough week, as GBP/USD  lost about 100 points. The pair closed  the week at 1.5617. The upcoming week is very quiet, highlighted by Current Account.  Here is an outlook on the major events moving the  pound and an updated technical analysis for GBP/USD.

Last week’s highlight was the highly-anticipated Federal Reserve policy statement. Market analysts noted that previous Fed policy statements have usually stated that the Fed would maintain low rates for a “considerable time”, but the December statement changed terminology, saying the Fed would be “patient” before raising rates. The statement was followed by a hawkish Yellen, with a strong hint that the Fed could raise rates as early as the second quarter of 2015. There was more good news from the employment front, as Unemployment Claims posted another strong release. In the UK, inflation continues to drop, as CPI dipped to 1.0%. Retail Sales looked sharp, rising 1.6%. The pound moved higher after the retail sales report but gave up most of these gains before the end of the week.

 

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

GBPUSDForecast Dec.22-26

  1. FPC Meeting Minutes:  Monday, 9:30. The FPC released a statement last week, at the same time that the BOE released its Financial Stability Report. If the minutes contain any references or hints about interest rate policy, we could see some movement from GBP/USD.
  2. Current Account: Tuesday, 9:30. This is the key indicator of the week. Current Account is closely linked to currency demand, so an unexpected reading can have a significant impact on the direction of GBP/USD.   The indicator posted an unexpectedly  large deficit in Q2, rising to GBP 23.1 billion. This was much higher than the estimate of a deficit of 16.9 billion. Another large deficit is expected, with a forecast of  -21.1 billion for Q3.
  3. BBA Mortgage Approvals:  Tuesday, 9:30. The indicator has been on a downward trend, having softened for four straight readings and falling short of expectations on each occasion. In October, the indicator dipped to 37.1 thousand and little change is expected in the upcoming reading.
  4. Final GDP: Tuesday, 9:30. GDP will wrap up a quiet week. The indicator  rose  to 0.9% in Q2, edging above  the estimate of 0.8%. This marked the strongest gain we’ve seen  from GDP in seven quarters. Another strong gain  is expected, with the estimate for Q3 standing at 0.7%.

* All times are GMT

GBP/USD Technical Analysis

GBP/USD  opened the week at 1.5723 and climbed to 1.5785.  The pair then  reversed  directions,  dropping sharply  to a  low of 1.5543, as support held at 1.5539 (discussed last week). GBP/USD closed at  1.5617.

Live chart of GBP/USD:

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Technical  lines from top to bottom

We  begin with resistance at 1.6130. This line has  remained intact  since late October.

1.6002 is protecting  the psychologically important 1.60 level. This is followed by 1.5911.

1.5746 was tested early in the week but remains a strong resistance line. It was an important support level in January 2013.

1.5625  continues to have a busy December and switched to  a resistance role last week  as the pound  dropped   sharply.

1.5539 weakened but held on as the pair dropped close to this support level. It could face pressure early in the week if the pair loses ground.

1.5290 was a cushion in July 2013.

1.5114 is the final support line for now. It had remained intact since March 2013.

I  am neutral  on GBP/USD.

With a light Christmas week schedule in both the US and the UK, trading will be thin as the markets  wrap up the year and  get ready  for 2015.  However, GDP releases in both countries will be closely watched, and any unexpected readings could affect the movement of GBP/USD.

In our latest podcast, we run down all aspects of the Fed decision, discuss the running down of oil, the run down Russian ruble and the weak currency down under:

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Further reading: