GBP/USD Outlook – Jan. 31 – Feb 4

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After the shocker squeeze in the economy, the pound is up for a busy week, with fresh indicators of the economy. Here’s an outlook for the British events, and an updated technical analysis for GBP/USD.

The pound was hit both by the squeeze in the economy and the Egyptian crisis, which threatens the global recovery and triggers risk aversive trading. Only the hopes for a rate hike helped it.

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

GBP USD Chart - January 31 - Feb. 4

GBP USD Chart - January 31 - Feb. 4 - Click to enlarge

  1. Halifax HPI: Publication time unknown at the moment. This is considered one of the most accurate house price indices, due to the wide range of data – internal mortgage data held by HBOS. After a disappointing drop of 1.3%, a small fall of 0.1% is now predicted. A rise will boost the pound, but it isn’t likely.
  2. Nationwide HPI: Tuesday, 7:00. While this data is less accurate, it has an impact due to its freshness. Contrary to the previous figure, this one surprised with a rise in home prices – 0.4%. A drop of 0.3% is now expected.
  3. Manufacturing PMI: Tuesday, 9:30. Manufacturing is holding the UK economy intact. The recent months saw big surprises in this sector. The score reached 58.3 points, meaning strong expansion. It’s now expected to ease to 58.1 points.
  4. Net Lending to Individuals: Tuesday, 9:30. Though somewhat overshadowed by manufacturing, this indicator still has an impact. More lending means more activity, but we saw a disappointing 0.7 billion number last month. Another squeeze is expected now – 0.6 billion.
  5. Construction PMI: Wednesday, 9:30. Contrary to manufacturing, the construction sector is dragging the economy down. The indicator dropped to 49.1 points last month, under the 50 line that separates expansion and contraction. A small correction to 49.7 is expected now. A rise above 50 will aid the pound.
  6. Services PMI: Thursday, 9:30. The last PMI of the week is the most important one. The services sector also fell to economic squeeze last month, falling to 49.7 points. A correction to 51.1 points is expected now. If this is realized and last month’s number is revised above 50, it will be a big relief, but it isn’t likely.

* All times are GMT.

GBP/USD Technical Analysis

After failing to settle above the round number of 1.60 (mentioned last week), GBP/USD fell down to 1.5750, before recovering and closing around 1.5860.

Looking down, 1.5840 is now only a weak line of support, unlikely to hold for a long time. Below, 1.5720, turns into a stronger line, that worked in the past week and also beforehand.

Even more important support is found at 1.5650, which was the top border of wide range that GBP/USD traded in until the recent breakout. It’s followed by 1.5480, which is a minor line.

Further significant support appears at 1.5350, which was the bottom border or the wide range.  It hasn’t been broken for a long time.

1.5230 capped the pair in the beginning of the summer, and is now has a different role. It’s followed by 1.5120, which already worked as support, and is a minor line now.

Looking up, 1.5910 is a minor line of resistance, before the main dish – 1.60, which proved yet again that it’s not only a round number. It was also a peak in August.

Higher, 1.6107, the swing high, is the next line of resistance after being a swing peak. Above, 1.63, the highest level in a year and serves as significant resistance.

An old peak at 1.6450 is the next line, and it’s followed by 1.67, but these lines are still far now.

I remain bearish on GBP/USD

The shocking contraction, joined by risk aversion due to the Egyptian crisis, are likely to send the pair down. High inflation just complicates the situation, but it won’t help the pound. Reality bites.

Further reading:

Get the 5 most predictable currency pairs

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