The pound had a dismal week, as GBP/USD continued to fall, losing over three cents on the week. This week’s major event is Manufacturing Production. Here is an outlook of the events and an updated technical analysis for GBP/USD.
The pound continues to plunge, and finds itself below the 1.49 line. British Service and Manufacturing PMIs looked good, but the pound still took a hit as the BOE released a statement that the markets should not expect any rate increases in the near future. As well, solid US Non-Farm Payrolls gave a boost to the dollar against the major currencies.
GBP continues to show volatility, and has again climbed close to 1.52.
CB Leading Index rose by 0.4%. Cable is holding above 1.50. More: Fearing the Fed
GBP/USD graph with support and resistance lines on it. Click to enlarge:
BRC Retail Sales Monitor: Monday, 23:01. This indicator precedes the official Retail Sales release by about 10 days, and only includes retailers affiliated with the BRC (British Retail Consortium). The indicator bounced back last month after a poor showing in May, and posted a gain of 1.8%. The markets are expecting a similar reading in the July release.
Manufacturing Production: Tuesday, 8:30. This is the only key release this week out of the UK. The indicator looked sharp in May, with a 1.1% gain, but floundered in June, declining by 0.2%. The markets are expecting a gain of 0.5% in July. If the indicator can beat the forecast, the pound could get a lift.
Trade Balance: Tuesday, 8:30. The UK continues to post monthly deficits, but there was some improvement last month. The deficit narrowed from -9.1 billion pounds to -8.2 billion, easily beating the estimate of -8.8 billion. The upcoming estimate stands at -8.4 billion. Will the indicator repeat and again beat the forecast?
NIESR GDP Estimate: Tuesday, 14:00. This indicator tracks GDP on a monthly basis, as official GDP data is released only each quarter. The indicator posted a 0.6% gain last month, and this figure is the estimate for the July release.
External BOE MPC Member David Miles: Thursday, 8:30. Miles will be speaking at an insurers conference in London. Analysts will be monitoring the speech, hoping to pick up some possible clues about the BOE’s future monetary policy.
30-year Bond Auction: Thursday, Tentative. The previous release saw 30-year bonds post an average yield of 3.29%, which was slightly above the May release.
CB Leading Index: Friday, 9:00. This index is based on 7 economic indicators, but is considered a third-tier release, since most of the indicators have been released previously. The indicator posted a small gain of 0.2% in June, a four-month low. Will the index bounce back in the upcoming release?
GBP/USD Technical Analysis
GBP/USD opened the week at 1.5208. The pair touched a high of 1.5308, but it was all downhill after that. GBP/USD dropped sharply, crashing below the 1.50 line and reaching a low of 1.4857, as the support level of 1.4897 (discussed last week) did not hold. The pair closed the week at 1.4881.
Technicallines from top to bottom:
With the pound continuing to lose more ground we begin at lower levels this week.
1.5416 is a strong resistance line. This is followed by 1.5258, which reverted to a resistance role after providing support since late May.
The line of 1.5196 follows. It began the week as weak support, but has reverted to resistance which is protecting the 1.52 line.
Next is 1.5110. This support level was breached as the pair slumped badly, and has reverted to a strong resistance line.
1.5000 is a critical level. It had held steady in a support role since mid-March, but fell on Friday as the pound took a dive. This is followed by 1.4897, which is providing weak resistance. It could see more activity early next week.
GBP/USD is receiving support at 1.4781, which has not been tested since June 2010.
1.4529 is the next support level. It has remained intact since early June 2010.
1.4346 saw a fair bit of action in the first quarter of 2009, and was last tested in June 2010.
1.4271 is the final support line for now. It marks the low point of a GBP/USD rally which began in April 2009 and saw the pound hit a high of 1.70 in August of that year.
I remain bearish on GBP/USD.
The pound is looking terrible, as the currency has lost over eight cents since mid-June. Will the downward trend continue? Austerity continues in the UK, and the BOE didn’t help the pound by warning the markets not to expect any interest rate hikes. Even with respectable economic releases last week, the pound can’t seem to find its footing. Meanwhile, the US dollar has looked strong against the major currency, and got a boost late in the week from sharp US Non-Farm Payrolls data.
Further reading:
For a broad view of all the week’s major events worldwide, read the USD outlook.
Kenny Fisher - Senior Writer
A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.
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