GBP/USD was unchanged over the week, although the pair did drop over 200 pips before rebounding, to close at the 1.5870 level. The upcoming week has six releases. Here is an outlook for the upcoming events, and an updated technical analysis for GBP/USD.
British GDP contracted by 0.2% in Q4 of 2011, and business investment plunged by some 5.4% in the same period. Yet, despite these gloomy figures, the pound has managed to hold its own against the dollar and then some, reaching as high as the 1.59 level this week.
Updates: GBP/USD is trading at 1.5864, and could break through the 1.59 level if the upswing continues. Traders don’t seem bothered by the sluggish UK economy as the pound continues to look strong. CBI Realized Sales surprised by rising to -2 points. Nevertheless, the pair turned lower as troubles in Greece and the Irish declaration of a referendum caused worries in the markets. GBP/USD is holding above 1.58 at the moment. Net Lending and Money Supply posted strong figures, above market expectations. The pound is again on the move upwards, trading in the 1.5960 range.
- CBI Realized Sales: Tuesday, 11:00. This diffusion index is based on a survey of retailers and wholesalers. The index recorded a -22 reading in January, its lowest level in almost three years. The market forecast for February calls for a slight improvement to -15, but clearly the retail and wholesale sectors are in trouble.
- GfK Consumer Confidence: Wednesday, 12:01. The British consumer continues to be deeply pessimistic, as indicated by the consumer confidence index. Low confidence means less spending, which affects all sectors of the UK economy. The markets are predicting little change in the February reading.
- Net Lending to Individuals: Wednesday, 9:30. This indicator measures credit issued to consumers, and provides a snapshot of consumer spending. The indicator fell to 0.4B in January, well below the market forecast and the third consecutive lower reading. However, the market forecast for February calls for a rise to 0.8B.
- Manufacturing PMI: Thursday, 9:30. This diffusion index is based on surveyed purchasing managers in the manufacturing industry. In February, the index climbed over the important 50 level. This marked the first time that the index has risen above 5 since October 2011. The forecast for the March reading is practically the same, indicating very slight expansion is predicted for the manufacturing sector.
- Halifax HPI: Friday, publication time unknown. This indicator measures inflation in the housing sector, and provides important data about activity in this industry. The previous reading was an increase of 0.6%. The forecast for March is a modest increase of 0.1%, indicating that the housing sector continues to be weak.
- Construction PMI: Friday, 9:30. This index has been hovering slightly above the 50 level, with a January reading of 51.4. The markets are predicting almost no change, indicating that the sector is showing very slight expansion.
* All times are GMT.
GBP/USD Technical Analysis
Pound/dollar started the week at 1.5865. The pair dropped sharply to 1.5648, but bounced back, climbing just shy of the 1.59 resistance line (discussed last week), to 1.5899. It close the week unchanged, at 1.5869.
Technical levels from top to bottom
We begin with the strong resistance level of 1.6472, which has not been tested since August 2011. The next line of resistance is at 1.6426. This is followed by resistance at 1.6265. Next, 1.6132 has provided strong resistance since November of last year. Below, there is resistance at 1.6065, followed by strong resistance at the psychologically important figure of 1.60. The pair went as high as 1.5899, unable to breach the resistance line at the round number of 1.59.
With some strong movement downwards by GBP/USD this week, the important line of 1.5755 continues to be tested. It is still acting as weak support for the pair. The next line of support is a weak one, at 1.5720. Below, 1.5629 has held fast as a support line since late January. Next, 1.5520 is providing strong support. Finally, the round number of 1.54, which served as strong support in November and December 2011, is again providing support to the pair.
I remain neutral on GBP/USD.
The pound has been able to shrug off weak economic news coming out of the UK, but how long can that last? The pair has moved upwards a spectacular six cents in 2012, so a correction of some kind is long overdue.
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