GBP/USD Outlook Dec. 10-14

GBP/USD remained unchanged over the week, closing at 1.6032. The highlight of the upcoming week is Claimant Count Change. Here is an outlook of the upcoming events, and an updated technical analysis for GBP/USD.

UK data was uneventful last week, as PMI numbers were close to the estimates. As well, the BOE made no changes to either QE  or the key  lending rate,  and the pound had a very quiet week.

Updates: BOE Governor Mervyn King delivered a speech at the Economic Club in New York. RICS House Price Balance disappointed, as the inflation indicator fell 9.0%. The estimate stood at a 5.0% drop. CB Leading Index fell to a five-month low, as it posted a 0.4% decline. The UK 10-year bond auction posted an average yield of 1.80%. This was almost unchanged from the previous yield of 1.82%. Claimant Count Change and the Unemployment Rate will be released on Wednesday. GBP/USD is steady, as the pair was trading at 1.6090. There were good employment numbers out of the UK on Thursday. Claimant Count Change dropped by 3.0 thousand, much better than the estimate of a gain of 5.9K. The unemployment rate dipped to 7.8% from the previous 7.9%. Average Earnings Index came in at 1.8%, just below the estimate of 1.9%. BOE Chief Economist Spencer Dale spoke at a seminar in London. CBI Industrial Order Expectations came in at -12 points, stronger than the forecast of -17 points. The pound is higher, as GBP/USD was trading at 1.6142.

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

1. BOE Governor Mervyn King Speaks: Monday, 17:15. Governor King will be delivering remarks to the Economic Club in New York. A speech which is more hawkish than expected is bullish for the pound.
2. RICS House Price Balance: Tuesday, 00:01. The housing index continues to post declines, but the previous reading was the highest reading in over a year. The estimate for December calls for a  slight improvement, with a forecast of -5%.
3. 10-year Bond Auction: Tuesday, Tentative. The average yield on 10-year bonds has been fairly steady. The yield for the previous 10-year bond came in at 1.82%. No major change is expected in the December release.
4. CB Leading Index: Tuesday, 10:00. This composite index is based on seven economic indicators. The index has posted two consecutive readings of 0.2%. Will the index continue to point to very modest economic growth?
5. Claimant Count Change: Wednesday, 9:30. This key employment indicator slumped in November, as the number of unemployment claims jumped to  its highest level in over a year. Another weak release could hurt  confidence in the pound. The Unemployment Rate will be released at the same time as the Claimant Count Change. The rate is expected to  edge up to 7.9% from the current level of 7.8%.
6. Average Earnings Index: Wednesday, 9:30. This index is a leading indicator of inflation in the UK. The index has been moving upwards over the past two readings, and the markets are expecting another increase this month, with an estimate of 1.9%.
7. MPC Member Spencer Dale Speaks: Wednesday, 10:45. MPC Member Dale will be addressing the Market News International Seminar in London.Analysts will be looking for clues with regard to the BOE’s monetary policy.
8. CBI Industrial Order Expectations: Thursday, 11:00. The indicator has been in negative territory since August 2011, indicating weak activity in the UK manufacturing sector. The markets are expecting a slight improvement this month, with an  estimate  of -17 points.

*All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.6022. The pair briefly broke through resistance at 1.6022 (discussed last week) as it reached  a  high of 1.6131. The pair then retracted, dropping as low as 1.6002. GBP/USD closed the week at 1.6032.

Technical lines from top to bottom:

We  begin with resistance at the round number of 1.66. Next, there is resistance at 1.6475. This line has held firm since August 2011. This is followed by resistance at 1.6343. This line was last breached when the pound dropped sharply in August 2011. We next encounter resistance at 1.6247. Below, there is resistance at 1.6122. GBP/USD briefly breached this line before retracting. Next, there is resistance at 1.6060. This line was briefly breached, but continues to provide weak resistance. Look for  this line to  be further tested if the pound improves.

GBP/USD continues to receive weak support at 1.5992. The pair broke through this line as it lost some ground, before it bounced back above the 1.60 line. This is followed by 1.5930.   Next, there is strong support at 1.5850. This is followed by 1.5750, a support line which has held firm since August. Below, there is support at 1.5648.

We next encounter resistance at the round figure of 1.5600. This is followed by support at 1.5530. This line was last breached in August, when the pound started its impressive summer rally. The final support line for now is 1.5414, which has held firm since July.

I am bullish on GBP/USD.

The pound  didn’t break out last week, but it has  looked solid since mid-November, gaining close to two cents against the greenback. As we approach the end of the year, the markets are now focused on the looming fiscal cliff crisis.  It is likely that  some kind of compromise will be reached in Washington.  If the fiscal  cliff is averted, market sentiment would be positive, and this could bolster the pound at the expense of the greenback.

Further reading:

• For a broad view of all the week’s major events worldwide, read the USD outlook.
• For EUR/USD, check out the Euro to Dollar forecast.
• For the Japanese yen, read the USD/JPY forecast.
• For the Australian dollar (Aussie), check out the AUD to USD forecast.
• For USD/CAD (loonie), check out the Canadian dollar forecast.