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The British pound reversed its gains and closed lower. Is this the beginning of a long term move? The upcoming week consists of important PMI figures, among other data. Here is an outlook for this week’s events, and an updated technical analysis for GBP/USD.

The “safe haven” status that the pound managed to gain is fading away. With confirmed weak growth and a drop in consumer activity, the pound lost ground. A lot depends now on US QE, which is supposedly off the table, although there are doubts.

GBP/USD daily chart with support and resistance lines marked. Click to enlarge:GBP USD Chart August 29 September 2 2011

  1. Net Lending to Individuals: Tuesday, 8:30. More lending means more economic activity. After a few months of strong activity, net lending fell to 400 billion last month. This weighed on the pound. A return to above 1 billion is expected now.
  2. GfK Consumer Confidence: Tuesday, 23:00. This survey of 2000 consumers has shown pessimism for quite a long time. A score between -20 to -30 has been reported in recent months. After dropping to -30 in July, another tick down to -31 is likely now.
  3. Nationwide HPI: Thursday, 6:00. This highly regarded house price index has been quite stable in the past 4 months, with maximum changes of 0.2%. The recent rise of 0.2% is expected to be followed by a rise of 0.1% rise.
  4. Manufacturing PMI: Thursday, 8:30. Britain’s manufacturing sector dipped into contraction zone last month, with the score hitting 49.1 points. This was a bitter disappointment. A small rise to 49.6 is expected now. Only a figure above 50, meaning a return to growth, will aid the pound.
  5. Construction PMI: Friday, 8:30. The construction sector in the UK is doing better, showing stable, though low growth. The score is expected to slide from 53.5 to 53.1 points. The most important PMI will wait for the next week.

* All times are GMT.

GBP/USD Technical Analysis

Pound/dollar started the week on high ground. After failing to conquer the 1.6550 line (discussed last week), it took a dive and eventually found support at 1.62 before closing at 1.6362.

Technical levels, from top to bottom:

The peak of the year is the where we start at: 1.6750. This line also had a role in the past, and might be tackled on an upwards move. Minor resistance is found at 1.6623, which was support when the pair was trading higher and was tested recently.

1.6550 was a peak at the end of May and proved to be a strong line of resistance once again. 1.6450 is the next line of resistance. It worked as support just now, and when it broke down, the pair couldn’t come back.

1.64 is a minor line, after working as resistance for another week.  The veteran 1.6280 to 1.63 has a weaker, somewhat more pivotal role at the moment. It was a peak several times in recent months and usually worked better as support.

1.62 has has a stronger role now, after stopping the downfall. It provided a solid bottom when the pair was falling.  Further below, 1.6110 is another veteran line. It quickly turned into support before the next move higher. Yet again, its importance was seen.

Below, the round number of 1.60 was the base of the leap.  1.5940, which was a previous swing low, returns to play a role now, but a minor one. 1.5910, which was a peak many months ago, worked perfectly as support after the pair climbed back up. It is an important line now.

1.5820 is only a minor line. It delayed the comeback. The fresh low of 1.5780 is the next support line, which will be tested on the next fall.

I remain bearish on GBP/USD.

The British economy remains quite fragile, with consumers still hesitant. The slow growth and the looming option of QE2 in the UK will likely weigh on the pound.

FX Tech Strategy sees a technical breakdown in GBP/USD.

Further reading: