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The pound dropped under the global weight and British weakness. The upcoming week is also busy, with key inflation and employment figures. Here is an outlook for these events and an updated technical analysis for GBP/USD.

The weakness spans from the services sector to house prices. While members at the Bank of England might be discussing more quantitative easing, this didn’t happen in the last rate decision, and this temporarily held the pound.

GBP/USD chart with support and resistance lines on it. Click to enlarge:GBP/USD Chart September 12 16 2011

  1. Nationwide Consumer Confidence: Publication time unknown at the moment. After dropping to a trough of 39 points a few months ago, this important survey of 1000 consumers managed to stabilize around 50 points. From last month’s 49 points, a small slide is likely now.
  2. RICS House Price Balance: Monday, 23:00. This indicator shows that the balance of house prices is leaning to the downside. This is the situation for over a year. Last month saw an improvement to -22%. The same figure is likely now.
  3. CPI: Tuesday, 8:30. The annual pace of price rises is at 4.4%. Similar high levels have been seen for many months in the consumer price index. Despite this strength, the MPC has been reluctant to raise the rates due to the weak economy, and policymakers are even considering another round of QE. A small drop in headline inflation is likely now. Core CPI is expected to drop from 3.1% and the Retail Price Index is predicted to remain at similar levels to last month’s 5%.
  4. Trade Balance: Tuesday, 8:30. While slightly overshadowed by the inflation numbers, the deficit remains a burden. It will likely drop from last month’s high level of 8.9 billion, helping the pound.
  5. Employment data: Wednesday, 8:30.  Claimant Count Change, similar to jobless claims, has been on the rise in the past 5 months. The last rise was quite big, 37.1K, the highest in over two years, and it weighed heavily on the pound. Another rise is expected now, though smaller for the month of August. The unemployment rate also disappointed last month by rising from 7.7% to 7.9%. Another tick up is expected now to 8%. This is for the month of July.
  6. Retail Sales: Thursday, 8:30. On the bright side, this important consumer indicator has  risen  in the past two months. Last month’s rise of 0.2% will likely be followed by a drop in the same small scale.
  7. Consumer Inflation Expectations: Thursday, 8:30. While high inflation doesn’t top the agenda any more, this quarterly gauge is still important and tends to rock the pound. After ranging between 3 to 4% in the past 5 quarters, a slide is likely now.

* All times are GMT.

GBP/USD Technical Analysis

Pound/dollar gapped lower under the 1.62 line (mentioned last week). It made a brief attempt to rise but then fell sharply, eventually losing the 1.5910 to close at 1.5872.

Technical levels, from top to bottom:

The YTD high of 1.6750 is the top line. Minor resistance is at 1.6623, which was support when the pair was trading higher and was before the recent downfall.

1.6550 served as peak at the end of May and proved to be a strong line of resistance many times afterwards. 1.6450 is the next line of resistance. It worked as support recently, and when it broke down, the pair couldn’t come back.

1.64 is a minor line, after working as resistance for another week. The veteran region of 1.6280 – 1.63 remains of high importance.

1.62 served as a top just now and the failure to break higher marked the beginning of the downfall. It provided a more solid bottom beforehand.  Further below, 1.6110 is another veteran line. It quickly turned into support before the next move higher. Yet again, its importance was seen.

Below, the round number of 1.60 is weaker now, but still draws attention. 1.5910, which was a peak many months ago, gave a fight, but was eventually broken.

Immediate support is now at 1.5823, which worked as stubborn support early in the year. It is closely followed by the swing low of 1.5780, which also minor resistance in 2010.

1.5650 is a clear line separating range, and can cushion a fall if 1.5780 is broken. 1.5550 is the next line below after providing support back in December.

The ultimate low is the year to date trough at 1.5350. It’s still far.

I remain bearish on GBP/USD.

We’ve seen once again that the economy is close to recession, with the weakness in services being very worrying. Even if employment figures aren’t so bad once again, there still is a growing chance of another round of QE in Britain. Pressure persists.

Further reading:

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