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GBP/USD  showed some strong movement in both directions during the holidays, but closed the week with modest losses. The pair  closed at  1.6417. This week’s highlights include Services PMI and Manufacturing Production.  Here is an outlook for the main events moving the pound, and an updated technical analysis for GBP/USD.

Strong US Unemployment Claims and a cautious thumbs up from Bernard Bernanke helped the  dollar improve at the end of  last week. In the UK,  Construction and Manufacturing PMIs remain strong, but were  down slightly  in  December.

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GBP/USD graph with support and resistance lines on it. Click to enlarge:   GBP USD Forecast Jan. 6-10

  1. Services PMI: Monday, 9:30. Services PMI continues to look strong, coming in at 60.0 points last month. However, this fell short of the estimate of 62.1 points. The markets are not expecting much change in December, with an estimate of 60.4 points.
  2. Halifax HPI: 7th-10th. This housing price index is an important gauge of activity in the housing sector. The index jumped 1.1% in November, a seven-month high. The markets are expecting a downturn in the upcoming release, with an estimate of 0.6%.
  3. BRC Shop Price Index: Wednesday, 00:01. This indicator looks at inflation in the BRC retail stores. The index continues to post declines through the second half of 2013 and came in at -0.3% last month. The markets will be hoping for an improvement for the December reading.
  4. BOE Credit Conditions Survey: Wednesday, 9:30. This BOE report is released on a quarterly basis. Credit conditions are closely monitored since higher debt levels signifies an increase in consumer confidence and spending, which is critical for economic growth.
  5. Trade Balance: Thursday, 9:30. The UK continues to post trade deficits, although the readings have been fairly steady. The November release came in at -9.7 billion pounds and the estimate for the upcoming reading stands at -9.4 billion.
  6. Asset Purchase Facility: Thursday, 12:00. The BOE  has pegged QE at 375 billion pounds  since mid-2012.  No change is expected in this level in the December decision.
  7. Official Bank Rate: Thursday, 12:00. The benchmark interest rate has been set at 0.50% since 2009. The BOE has reiterated that no change is expected until unemployment falls below 7.0%, but as the British economy continues to pick up steam speculation has increased that the BOE might have to raise rates sooner rather than later. The BOE will announce the new rate in a Rate Statement.
  8. BRC Retail  Sales Monitor: Friday, 00:01. This indicator looks at retail sales in the BRC stores. The indicator dropped to 0.6% in November, down from 0.6% in the previous month. This indicator precedes the government released Retail Sales, which is a market-mover.
  9. Manufacturing Production: Friday, 9:30.  Manufacturing Production is a key event and can have a major impact on the movement of GBP/USD. The indicator posted a weak gain of 0.4% last month, matching the forecast. No change is expected in the upcoming release.
  10. NIESR GDP Estimate: Friday, 15:00. This indicator helps analysts track GDP growth, as the official GDP release is done on a quarterly basis. The indicator has been quite steady and posted a gain of 0.8% in the previous reading.

* All times are GMT

 

GBP/USD Technical Analysis

GBP/USD opened the week at 1.6480. The pair  barreled pushed above  the resistance line of 1.66 line (discussed last week),  touching a high of 1.6604.  GBP/USD lost  ground late in the week, dropping to a low of 1.6395.  The pair closed the week  at 1.6417.

Live chart of GBP/USD: [do action=”tradingviews” pair=”GBPUSD” interval=”60″/]

Technical lines from top to bottom

 We  start with resistance at  1.6990, which is protecting the key 1.70 level. This line has remained intact since October 2008.

Next is resistance at 1.6705, which has  held firm since May 2011. This is followed by the round number of 1.6600. This line again saw pressure late in the week, and was briefly breached before the pair retracted.

1.6475 continues to be busy and opened the week as a weak support level. It was breached  for a third  straight week as the pair lost ground late in the week.  The line has reverted to a resistance role.

This is followed by 1.6343, which held firm as the first support line. It could face pressure if the US dollar continues to improve.

1.6247  continues to provide the pair with strong support.  This was a key resistance line in October and November 2012.

1.6125  is the next support level. This line has held steady since late November.

The round number of 1.60, a key psychological barrier, is providing the pair with strong support.

The final support level  for  now is  1.5893, which last saw action in November.

 

I am  neutral on GBP/USD.

If British PMIs post solid numbers this week, the pound could post further gains. At the same time, the Fed finally announced a QE taper and with the markets  anticipating more  tapering in the near future, we could see the dollar move higher. US Unemployment Claims continue to look good, and if this week’s employment releases are strong, the dollar could make some headway.

Further reading: