Wednesday, 31 August 2011

Forecast: Fundamentals Aren’t Favorable for Pound

Great Britain pound fell during the previous week, but rose earlier this week. Could it be a sign that the pound will reverse its downtrend? Currently available data indicate that this case is unlikely.

Previously, the proceeds from the book were mainly by investors fleeing the euro and the problems of the European Union to the UK currency is perceived as more secure. However, the macroeconomic data continuously demonstrates that the British economy has its own problems and not much better than the economies of continental Europe.

The growth of the UK economy slowed to 0.2 percent in the second quarter versus the first quarter, while growth in the first quarter of the last three months was 0.5 percent. The figures were even worse in the year-over-year basis and the expansion in the second quarter was 0.7 percent, while increasing in the first quarter was 1.6 percent.

This week is not great for the pound either. GFK Consumer Confidence Index is expected to go down slightly from -30 to -32. Views on the housing sector are mixed. While the index Halifax house prices are expected to show a monthly increase of 0.5 percent in August, compared with 0.3 percent in July, analysts predict HPI National show a slower growth of 0.1 percent this month, down from 0.2 percent in the previous month.

All in all, this week doesn’t look very favorable for the UK currency. In case of a rally, GBP/USD would find strong resistance at 1.6550 level. That was the level of resistance in May and more recently in July. The currency can find support at 1.6250 –1.6300 level as it provided strong support in the second part of July and was the recent base for the current rally. Below that the area somewhat above 1.6100 as that was the floor for the currency, when it has broke to the downside at the beginning of August.

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