GBP/USD Outlook Nov. 4-8

GBP/USD tumbled last week, as the pair dropped 250 points. GBP/USD closed the week at 1.5922.  This week has a host of key events, incuding PMIs,  Manufacturing Production  and the asset purchase facility and interest rate decisions. Here is an outlook for the main events moving the pound, and an updated technical analysis for GBP/USD.

British releases had a tough week, as CBI Realized Sales plunged and Manufacturing PMI missed the estimate. US readings were mixed, but there was some relief in the markets as the all-important Unemployment Claims met expectations.

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

1. Construction PMI: Monday, 9:30. This is the first key event of the week. After a string of improving releases, the PMI disappointed last month. The index came in at 58.9 points, short of the estimate of 60.1. The markets are expecting no change in the upcoming release, with an estimate of 58.9.
2. BRC Retail Sales Monitor: Tuesday, 00:01. This indicator measures retail sales in the BRC group of stores. The indicator has been steadily dropping and fell to just 0.7% last month. This was the indicator’s lowest reading since April. The markets are hoping for a reversal of the downward trend.
3. Halifax HPI: Tuesday, 5th-7th. The housing price index posted a modest gain of 0.3% in September, shy of the estimate of 0.6%. Little change is expected in the upcoming release, with an estimate of 0.4%.
4. Services PMI: Tuesday, 9:30. Services PMI has been looking sharp, as the index has topped the 60 level for the past three readings, indicating strong expansion. The previous release came in at 60.3 points and little change is expected in the October reading.
5. BRC Shop Price Index: Wednesday, 00:01. This index measures inflation in the BRC chain of stores. The index continues to post negative readings and the September release came in at -0.2%.
6. Manufacturing Production: Wednesday, 9:30. This key release has been struggling, and the index posted a sharp drop of 1.2% last month, way off the estimate of 0.3%. The markets are expecting a rebound in October, with an estimate of 1.2%.
7. NIESR GDP Estimate: Wednesday, 15:00. This indicator allows analysts to track GDP, which is released each quarter, on a monthly basis. The indcator has been posting respectable releases lately, and came in at 0.8% in September. The markets will be hoping for another strong release for October.
8. Rate decision:  Thursday, 12:00. No policy change is expected from the BOE. The current forward guidance policy is still young. Carney is likely to comment on this policy in the upcoming presentation of the quarterly inflation report. The interest rate in the UK will likely be raised during 2015, but the BOE will probably leave this declaration to the first half of 2014. The economy is certainly improving, but it seems that the official unemployment rate isn’t improving as fast as other indicators. A stronger pound would help curb the relatively high inflation, but Carney and co. aren’t expected to release a statement about this at this time.
9. Trade Balance: Friday, 9:30. The past two releases have posted deficits above 9 billion pounds, both of which were higher than their estimates. A slight improvement is expected in the upcoming release, with an estimate of -9.1 billion.

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

GBP/USD Technical Analysis

GBP/USD opened the week at 1.6172. The pair touched a high of 1.6208 early in the week, but then reversed directions and  dropped sharply,  crashing through the 1.60 level, and touching a low of 1.5909. The pair closed at 1.5922, as support at 1.5893 (discussed last week) remained in place.

Technical lines from top to bottom

With the pound taking a hit, we start at lower levels.

There is resistance at 1.6475, which has held firm since August 2011.

This is followed by 1.6343. This line was last breached when the pound dropped sharply in August 2011.

We next encounter resistance at 1.6247. This was a key resistance line in October and November 2012 and continues to provide strong resistance.

1.6125 started the week in a support role, but has reverted to resistance after GBP/USD dropped sharply.

1.60, a key psychological barrier which was providing support, also fell this week. It  starts the week as a support line  and could face pressure if the pound reverses direction.

1.5893 is the first support level. It remained intact last week, but is a weak line and could be tested early this week.

1.5752 was breached in mid-September by the surging pound but has provided strong support since then.

1.5648 was an important resistance line since June, but has been providing support role since early September.

1.5550 is  next. This line last saw action in mid-June.

1.5389 is our final support level for now. It is a strong line  and has remained intact since August.

I am  neutral on GBP/USD.

The pound suffered its worst week since it started its upward run in early September. The British currency finds itself at its lowest level in a  month.  The UK economy has  been  picking up  steam and strong UK releases could help the pound recover from last week’s disaster. Over in the US, we’re unlikely to see QE tapering before 2014, so the QE uncertainty, which had been weighing on the dollar, has receded for the time being.

Further reading:

• For a broad view of all the week’s major events worldwide, read the USD outlook.
• For EUR/USD, check out the Euro to Dollar forecast.
• For the Japanese yen, read the USD/JPY forecast.
• For the Australian dollar (Aussie), check out the AUD to USD forecast.
• For USD/CAD (loonie), check out the Canadian dollar forecast.