GBP/USD Outlook Dec. 16-20

GBP/USD posted modest gains on the week, closing at 1.6375. It’s a very busy week, with 17 releases on the schedule. Here is an outlook for the main events moving the pound, and an updated technical analysis for GBP/USD.

British releases were uneventful last week. In the US, Unemployment Claims jumped but retail sales improved in November.

Updates:

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

1. Rightmove HPI: Monday, 00:01. This house inflation indicator is an important gauge of activity in the housing market. The index posted a decline of 2.4% last month, its third decline in four releases. The markets are hoping for a better result for November.
2. CPI: Tuesday, 9:30. This is the primary inflation indicator and often moves GBP/USD. The index dropped to 2.2% in October, sh0rt of the estimate of 2.5%. The estimate for November also stands at 2.2%.
3. PPI Input: Tuesday, 9:30. This inflation indicator has looked sluggish, posting three straight declines. Little change is expected for this month’s reading, with an estimate of -0.5%.
4. RPI: Tuesday, 9:30. RPI dropped to 2.6% last month, its lowest level in over a year. The markets are expecting a similar reading for November, with an estimate of 2.7%.
5. CBI Industrial Order Expectations: Tuesday, 11:00. This important manufacturing indicator shot up to 11 points last month, crushing the estimate of 0 points. Another strong reading is expected ,with the estimate standing at 12 points.
6. BOE Governor Mark Carney Speaks: Tuesday, 15:30. Carney will testify before the  House of Lords Economic Affairs Committee in London. His remarks will  be closely watched and could cause some volatility in GBP/USD.
7. Claimant Count Change: Wednesday, 9:30. This is one of the most important economic indicators. It has been posting strong declines in recent releases, as the UK employment picture improves. The estimate for the upcoming release stands at -35.2K. The Unemployment Rate is expected to remain unchanged at 7.6%.
8. MPC Asset Purchase Facility Votes: Wednesday, 9:30. This indicator looks at the breakdown of the recent BOE decision on QE, which was to maintain levels at 325 billion pounds. The breakdown for the vote is expected to have been 9-0.
9. MPC Official Bank Rate Votes: Wednesday, 9:30. At the last BOE policy meeting, the Bank kept the benchmark interest rate unchanged at 0.50%. The breakdown for the vote is expected to have been 9-0.
10. Average Earnings Index: Wednesday, 9:30. This indicator is an important gauge of consumer inflation. The indicator has posted straight releases with a 0.7% gain, and the estimate for the upcoming release stands at 0.8%.
11. CBI Realized Sales: Wednesday, 11:00. CBI Realized Sales has looked weak in the past couple of months. The last release came in at just 1 point, well off the estimate of 12. points. The markets are expecting a strong improvement in the upcoming release, with an estimate of 9 points.
12. Retail Sales: Thursday, 9:30. Retail Sales is the primary gauge of consumer spending. The key indicator disappointed last month, declining by 0.7%. This was well short of the forecast of 0.0%. The estimate for the November release stands at 0.3%.
13. BOE Quarterly Bulletin: Friday, 00:01. This release includes commentary on the markets and on monetary p0licy. As a minor event, it is unlikely to have a major impact on GBP/USD.
14. GfK Consumer Confidence: Friday, 00:05. Although the British economy is picking up steam, consumer confidence is lagging behind. The previous release came in at a dismal -12 points and little change is expected in the upcoming release.
15. Current Account: Friday, 9:30. The UK continues to post current account deficits, and last month’s figure of -13.0 billion pounds was much higher than the estimate of -11.2 pounds. The estimate for the November reading stands at -13.8 billion.
16. Final GDP: Friday, 9:30. GDP readings are always eagerly awaited by the markets. This indicator is released each quarter, which magnifies the impact of each release. The indicator improved to 0.7% in Q2, matching the estimate. The markets are  expecting another strong release in Q3, with an estimate of 0.8%.
17. Public Sector Net Borrowing: Friday, 9:30. The public sector deficit has been shrinking and dropped to 6.4 billion pounds last month. However, this was well above the estimate of 4.8 billion. A similar reading is expected for November.

* All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.6327. The pair climbed to a high of 1.6465, but then reversed directions and dropped to a low of 1.6339. The pair closed at 1.6375, as support at 1.6343 (discussed last week) remained intact.

Live chart of GBP/USD:

Technical lines from top to bottom

We begin 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.

1.6475 has held firm since August 2011. This is followed by 1.6343, which was breached for a third week and begins the week in a support role. It is a weak line and could be tested early in the week.

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

1.6125 is next. This line has strengthened as GBP/USD trades at higher levels and has held steady since late November.

The round number of 1.60, a key psychological barrier, is providing strong support. Next is 1.5893 which saw action in November.

1.5752 is the final support line for now. It was breached in mid-September by the surging pound but has provided solid support since then.

I am neutral on GBP/USD.

The pound has looked strong and continues to hold its own against the US dollar. The British economy continues to pick up steam, which is good news for the pound. For its part, the dollar could get a boost asspeculation swirls over a possible QE taper this week.

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EUR/USD Forecast December 16-20

EUR/USD continued rising, but was unable to reach the previous highs. Is it about to change direction? Manufacturing and services PMIs, President Draghi’s speech, German ZEW Economic Sentiment and the Ifo Business Climate indicators. Here is an outlook for the market moving events and an updated technical analysis for EUR/USD.

Most recent indicators from the old continent haven’t been encouraging: industrial production unexpectedly fell in Germany, France, and in all the euro-zone. Inflation numbers from both core countries have been weak. In the US, politicians reached a budget deal that averts another government shutdown. Together with a positive employment figure that the Fed watches, chances for QE tapering seem even higher in December. With a lower high in place, can the pair reverse the gains? Let’s start:

Updates:

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

1. Manufacturing and Services PMIs: Monday. Recovery in the euro zone private sector weakened unexpectedly in November despite robust growth in Germany, due to a sharp fall in French business activity. Markit’s Eurozone Services Purchasing Managers’ Index, fell to 50.9 in November from 51.6 in the previous month, missing analysts’ predictions of a 51.9 reading. Meanwhile the manufacturing sector edged up marginally to 51.5 from 51.3 in the previous month. The lukewarm figures exemplify the fragile nature of the Eurozone’s recovery. French business activity shrank from 50.9 to 48.8 and the Manufacturing service further contracted to 47.8 from 49.1in October. German economy is the only force keeping the Eurozone from recession demonstrating robust growth with the manufacturing sector climbing to 52.5 from 51.7 and the services sector reaching 54.5 following 52.9 in the previous month. Nevertheless, output outside France and Germany increased for the fourth consecutive month, indicating the euro-area is on a growth trend; however the scale of improvement raises concerns. French manufacturing sector is expected to reach 49.1 while the services sector is predicted to climb to 48.9. German Manufacturing is expected to expand to 53.1 and the service sector is expected to reach 55.2. The Eurozone Manufacturing is expected to climb to 51.9 and the services sector is expected to reach 51.5.
2. Trade Balance: Monday, 10:00. The euro zone’s trade surplus increased in line with market forecast, reaching 14.3 billion euros in September from 12.3 billion in the previous month. Imports remained flat and exports increased. Total surplus of the euro zone for the first nine months of the year more than doubled on the year to 109.6 billion euros, compared with 50.2 billion euro surplus in the same period of 2012. The Eurozone failed to continue its growth trend from the second quarter mainly due to France’ contraction. The southern Euro countries, are weakened by record high  unemployment, weak growth and harsh austerity measures. Therefore are not fair match to other neighbor economies with stronger footing.  Trade surplus is expected to widen further to 15.2 billion.
3. German Buba Monthly Report: Monday, 11:00. Deutsche Bundesbank November report revealed a positive projections for Germany. The bank members believe current momentum will continue and will gain a stronger foothold in the coming months. Germany’s gross domestic product increased 0.3% in the third quarter from the preceding quarter, driven exclusively by domestic demand, a trend that is likely to continue. However the central bank warned, that creating an investment-friendly climate in Germany depends on the incoming government after elections earlier this year.
4. Mario Draghi speaks: Monday, 14:00. ECB President Mario Draghi will speak at the European Parliament’s Committee on Economic and Monetary Affairs, in Brussels. Draghi may talk about his call on national governments to deliver economic reforms focusing on completing the banking union, implementing growth-friendly fiscal consolidation, and structural reforms in labor and product markets. His last appearance was calm, and it boosted the euro.
5. German ZEW Economic Sentiment: Tuesday, 10:00. German investor sentiment gained traction in November reaching 54.6, its highest level since October 2009, with a firm improvement in the Eurozone outlook.  However ZEW’s current conditions index fell marginally for the second consecutive month, down to 28.7 from a reading of 29.7 in the previous month. The gain in investor projections goes hand in hand with German stable growth. GDP increased 0.3% in the third quarter and the Bundesbank expected further growth in the final quarter as well.  Another improvement to 55.5 is expected this time.
6. Inflation data: Tuesday, 10:00.  According to the initial read for November, inflation moved up from the lows, reaching 0.9%. The ECB cut its main interest rate by 0.25% because of this low inflation rate of 0.7% in October. A 1.5% yearly rate is expected to continue during next year, before easing slightly to 1.4% in 2015. CPI is expected to climb 0.9% while core CPI is predicted to gain 1.0%.
7. German Ifo Business Climate: Wednesday, 9:00. German IFO Business sentiment, based on around 7,000 monthly survey responses, edged up to 109.3 points for November, beating forecasts of 107.9 and topping October’s reading of 107.4. German economic growth softened in the third quarter, posting a mild rise of 0.3% compared to 0.7% growth rate in the previous quarter. The main force leading the expansion was a rise in domestic demand. The Bundesbank optimistic projections for Germany’s future growth forecast further support this rise.  Another improvement to 109.7 is forecasted.
8. Current Account: Thursday, 9:00. The euro zone’s current account surplus shrank unexpectedly in September, reaching a seasonally adjusted surplus of EUR13.7 billion compared to an upwardly revised reading of EUR17.9 billion in August. Economists expected the euro-area current account surplus to widen to EUR18.3 billion in September. On a 12 month cumulated reading for the period ending in September 2013, surplus reached EUR196.5 billion, 2.1% of euro area GDP, compared with a surplus of EUR100 billion, 1.1% of euro area GDP, for the previous 12-month period. Current account surplus is expected to reach 14.2 billion this time.
9. German PPI: Friday, 7:00. On a monthly basis the German PPI edged down 0.2% in October, following  0.3% growth in September. Economists expected a small rise of 0.1%. On a yearly basis PPI declined 0.7% in October, after dropping 0.5% in September, slightly below expectations of -0.6%. No change is expected now.
10. GfK German Consumer Climate: Friday, 7:00. German consumer sentiment climbed to a six-year high of 7.4 points in December, following a 7.1 reading in the previous month. The increase shows that domestic demand is now the main force behind Germany’s economic growth, compensating for weaker exports this year. A small gain to 7.5 is anticipated.

* All times are GMT

EUR/USD Technical Analysis

Euro/dollar started the week climbing from 1.3675 and going all the way to the 1.38 line (mentioned last week). After two failed attempts to cross this line, it fell and lost some ground.

Technical lines from top to bottom:

1.4036 was a separator back in 2011, and awaits the pair if it breaks above 1.40. 1.3940 was a peak in September 2011, over two years ago, and is just before the round number of 1.40.

1.3832 is the 2013 peak so far. The failure of the pair to get close to this line for a second time might make it a top for a long time. 1.38 is a round number and also worked as a temporary cap during that period of time and also in October 2013.

1.3710 was the previous 2013 peak, and served as a clear separator. The pair needed a big trigger to break above this line, and when it lost it again, the fall was painful. 1.3675 capped the pair in December and also provided some support back in October.

1.3615 worked as resistance in December, as an upper bound for the range. It is followed by 1.3525, which was the lower bound during this period and also had the opposite role in early 2013.

1.3440 worked as a clear separator in early November 2013 and is a key line to the upside. The round number of 1.34 worked as resistance several times in 2013, and is strengthening now.

1.3320 worked as a double top in early September and it was crossed only with a Sunday gap. It remains a clear separator of ranges. It is followed by 1.3240, which capped the pair in April and also had a role in August. It worked as support in September.

1.3175 capped the pair during July 2013. 1.3100 is worked as temporary resistance in December 2012 and is becoming more important once again, after capping a recovery attempt in June and then in July and providing support in September.

Uptrend resistance, Lower high

From early November, the pair is trending higher, riding above an uptrend support line that currently provides support around 1.36. The downtrend black thick line emphasizes the lower high the pair reached: from 1.3830 in October to 1.38 in December.

I turn from neutral to bearish on EUR/USD

No news proved to be good news for the euro once again, but with a lower high on the charts, the worries about a strong euro and a sluggish economy,  we could see weakness in the pair.

And more importantly during this week, a decision on QE tapering could boost the dollar. This is supported by positive job numbers, no political hurdles and a separation of expectations between QE tapering and a rate hike. All culminate to a perfect setting for the move that could make the USD the big winner now and in 2014.

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Forex - Weekly outlook: December 16 - 20

The dollar hit its strongest level in five years against the yen on Friday and rose against the euro amid expectations the Federal Reserve could begin scaling back its monthly bond buying program as soon as this month.

Expectations for a small reduction in the pace of the Fed’s USD85 billion-a-month asset purchase program at its upcoming policy meeting were boosted after stronger-than-forecast U.S. retail sales data for November released on Thursday added to signs that the economic recovery is deepening.

An agreement on a two-year U.S. budget deal was also seen as removing an obstacle to the winding back of monetary stimulus. 

USD/JPY rose to 103.92, the highest level since October 2008 and was last down 0.15% to 103.19. 

The dollar pulled back from highs as investors locked in profits, while data showing that U.S. producer price inflation fell 0.1% in November sparked concerns over the sluggish inflation outlook.

The soft inflation data did little to alter expectations that the Fed will begin withdrawing stimulus in the next few months after the latest U.S. nonfarm payrolls report showed that the U.S. economy added more jobs than expected in November.

The yen remained under heavy pressure on the view that the Bank of Japan will have to increase the size of its asset-purchase program in the coming year in order to meet its target of 2% inflation by 2015.

EUR/USD fell to 1.3710, the weakest level since December 9 and was last down 0.09% to 1.3739. 

The euro also scaled five year peaks against the yen on Friday, withEUR/JPY rising to 142.83, the highest level since October 2008, before pulling back to 141.81, ending the session 0.27% lower. 

Meanwhile, Australia’s dollar ended the week close to three month lows against the U.S. dollar after the country’s central bank Governor Glenn Stevens said the bank wanted to see the Aussie’s exchange rate closer to 0.85 U.S. cents in order to support the economy.

AUD/USD hit lows of 0.8908, the weakest level since August 30, and was last up 0.33% to 0.8965. For the week, the pair dropped 1.33%.

In the week ahead, investors will be focusing on Wednesday’s outcome of the Fed’s monthly policy meeting, and a press conference with Chairman Ben Bernanke will be closely watched.

The euro zone is to release data on manufacturing and service sector activity, while the ZEW index of German economic sentiment will be keenly awaited. In addition the BoJ is to hold what will be its final policy meeting of the year.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, December 16

Japan is to release data on manufacturing and service sector activity. Meanwhile, China is to produce preliminary data on the closely watched HSBC manufacturing index.

The euro zone is to publish data on manufacturing and service sector activity, while Germany and France are to publish individual reports. Germany’s central bank is to publish its monthly report.

The U.K. is to release private sector data on industrial order expectations.
Canada is to publish a report on foreign securities purchases.

The U.S. is to release reports on industrial production, manufacturing activity in the New York region and the balance of foreign and domestic investment in U.S. securities.

Tuesday, December 17

The Reserve Bank of Australia is to publish the minutes of its latest policy meeting, which contain valuable insights into economic conditions from the bank’s perspective. The nation is also to publish a report on an index of leading economic indicators as well as a report on new vehicle sales.
The U.K. is to release data on consumer price inflation, which accounts for the majority of overall inflation.

The ZEW Institute is to release its closely watched report on German economic sentiment, a leading indicator of economic health. The euro zone is to publish data on consumer inflation.

Canada is to produce data on manufacturing sales, a leading indicator of economic health.

The U.S. is to release data on consumer inflation and the current account.

Wednesday, December 18

Japan is to release data on the trade balance, the difference in value between imports and exports.

New Zealand is to produce private sector data on business confidence, a leading indicator of economic health.

The Ifo Institute is to publish a report on German business climate, a leading indicator of economic health.

The Bank of England is to publish the minutes of its most recent policy setting meeting. The U.K. is to release data on the change in the number of people employed and the unemployment rate.

The ZEW Institute is to publish a report on economic expectations in Switzerland, a leading indicator of economic health.

Canada is to produce data on wholesale sales, a leading indicator of consumer spending.

The U.S. is to release data on building permits, a leading indicator of future construction activity, and housing starts.

The Federal Reserve is to announce its federal funds rate and publish its rate statement, which outlines economic conditions and the factors affecting the monetary policy decision. The U.S. central bank is also to publish its economic projections for the next two years. The rate announcement is to be followed by a press conference with Chairman Ben Bernanke.

Later Wednesday, New Zealand is to release data on third quarter gross domestic product, the broadest indicator of economic activity and the leading indicator of economic growth.

Thursday, December 19

The euro zone is to release data on the current account.

The U.K. is to produce report on retail sales, the government measure of consumer spending, which accounts for the majority of overall economic activity.

The U.S. is to publish data on existing home sales, manufacturing activity in the Philadelphia region and initial jobless claims.

Friday, December 20

The BoJ is to announce its benchmark interest rate and publish its monetary policy statement, which outlines economic conditions and the factors affecting the bank’s decision. The announcement is to be followed by a press conference.

Germany is to release data on producer price inflation, as well as private sector data on consumer climate.

The U.K. is to publish revised data on third quarter GDP and reports on public sector net borrowing and the current account.

Canada is to release data on consumer inflation and retail sales.
The U.S. is to round up the week with revised data on third quarter GDP.

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