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The British pound  showed strong gains but couldn’t consolidate, as GBP/USD  settled for  slight gains and closed at 1.5048. This was the first time the pair has slipped below this symbolic level since July 2013. This week’s highlights are the PMI reports. Here is an outlook on the major events moving the pound and an updated technical analysis for GBP/USD.

The US economy received a vote of confidence from the  Federal Reserve statement, which noted solid US growth. Unemployment Claims were stellar, but durable goods disappointed and GDP missed expectations. In the UK, GDP edged lower to 0.5% and CBI Realized Sales was  sharply lower at 31 points.

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

GBPUSD_Forecast Feb. 2-6

  1. Manufacturing PMI: Monday, 9:30. Manufacturing PMI has been steady in recent months,  pointing to  slight expansion. The PMI dipped to 52.5 points in the December report, short of the forecast of 53.7 points. Little change is expected in the upcoming reading.
  2. Construction PMI: Tuesday, 9:30.  This index has been on a downturn since September, falling to 57.6 points in December. This unwelcome trend is expected to continue in the January release, with an estimate of 56.9 points.
  3. BRC Shop Price Index: Thursday, 00:01. This indicator measures consumer inflation in BRC shops, which is useful for tracking CPI. The index continues to post declines and came in at -1.7% in December.
  4. Halifax HPI:  Wednesday, 4th-7th. This indicator is an important gauge of inflation in the UK housing sector. The index surprised with a gain of 0.9% in December, marking a five-month high. This easily beat the estimate of 0.3%.
  5. Services PMI: Wednesday, 9:30.  Services PMI rounds out the PMI releases this week. The index dropped to 55.8 points in December, down sharply from 58.6 points in the previous reading. The markets are anticipating better news in the January report, with an estimate of 56.6 points.
  6. Official Bank Rate: Thursday, 12:00. The BoE is expected to leave the interest rate unchanged at 0.50%. With inflation levels continuing to drop, the BOE is under no pressure to raise rates, so the divergence between the US and UK will continue to weigh on the pound.  The asset-purchase facility  program  has  been pegged at  375 billion pounds since June 2012. No change is expected in the upcoming release.
  7. Trade Balance: Friday, 9:30. Trade Balance is closely linked to currency demand, as foreigners must buy  pounds in order to purchase  British goods and services. The trade deficit narrowed in November to GBP 8.8 billion, its lowest level in 8 months. This easily beat the forecast of a deficit of GBP 9.5 billion. The estimate for the upcoming release stands at GBP -9.0 billion.

* All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.4993  and climbed to high of 1.5223. The pair then reversed directions, touching a low of  1.4989 and  breaking below  1.5008 (discussed last week).  GBP/USD closed the week at 1.5048.

Live chart of GBP/USD:

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Technical lines from top to bottom

1.5416 was an important support line in June 2013, at which time the pound broke through and continued to slide and fell below the 1.49 line.

1.5290 is the next resistance line.

1.5114 was tested by the pair which showed strong gains before retracting. It starts the week as an immediate resistance line.

1.5008 continues to see action. It is a weak support line.

1.4813 marked the start of a pound rally in July 2013 that saw GBP/USD climb above 1.61.

1.4752 has held firm since May 2009.

1.4562 is the final  support  level for now. It  has provided support since  November 2008.

I am  neutral on GBP/USD.

The Federal Reserve  signaled  that an interest  rate remains  on track for later in the year, but Advance GDP for Q4 disappointed. Still, divergence favors the US dollar. The upcoming British PMIs  could have a major say in the pound’s fortunes this week.

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