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The  British pound  rebounded against the dollar, climbing close to the 1.58 level, but gave up those gains by week’s end.  The upcoming week is very quiet, with only  two releases, both  of which are  housing sector indicators.  Here is an outlook for the upcoming events, and an updated technical analysis for GBP/USD.

The British government deficit  hit 15.2 billion in November, which although  sharply higher than the October reading,  was a bit better than the market forecast, and postive news for the pound.At the same time, property prices are down significantly, and most economic indicators  are pointing to a recession in 2012.

Updates: Cable managed to move up early in the week, but then got stuck in a narrow range under 1.57.

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

  1.  Nationwide HPI:  Friday, 7:00.  The HPI (Housing Price Index) is an important housing sector indicator. This index focuses  on  inflation in the UK housing  market. The readings  were identical  for October and November,  at  0.4%, with the market  prediction in November  of -0.1%  well of the mark. This month’s forecast is for a slight increase to 0.4%. Will the index again confound the markets?
  2. Housing Equity Withdrawal : Friday, 9:30. This indicator, which  measures the change in equity loans that are not used for home purchases,  is released quarterly.  The previous reading was -9.1B, the lowest level the indicator has registered in over four years.  The market prediction was much higher, at -5.9B.  Such a large discrepancy is important to traders because a reading that  is lower  than the market forecast is bullish for  the pound.  The forecast for this quarter calls for an improved reading of -7.3B.

* All times are GMT.

GBP/USD Technical Analysis

Pound/dollar started  the week at 1.5517. After a brief drop to 1.5463, the pound rebounded nicely, climbing all the way to 1.5774, just shy of the 1.5780 resistance line (discussed last week). The pair then  gave back most of these  gains, closing the week at 1.5581.

Technical levels from top to bottom

We start  with  the resistance level of 1.61, which was tested in early November. 1.6045 is a line of weak resistance. Below, is the level of 1.59, which provided strong support in November, and is now acting as a resistance line.  1.5815 has proven to be a  strong line of resistance.  It is followed by, 1.5780, which was tested by the pair this week, and may be breached on any upward swing.

The round number of 1.57  is providing weak resistance,  and has been  breached several times in  December. The next line is 1.5580, which is also a  weak support  level.  This is followed by 1.5475, which  is  providing strong  support.  Below, are the levels of 1.5340 and 1.5270.  The final support level for now is 1.5120.

I remain bearish on GBP/USD.

Economic indicators in the UK, such as consumer confidence, retail sales and property  prices, are pointing sharply downwards, and the UK is  likely headed for a recession in 2012. The  outlook is much brighter in  the US, and this has been reflected  in  recent gains by the US dollar against most  major currencies.

Further reading: