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RussianThis week, 3 fundamental releases will give us a good idea of the UK's economic performance in January, as we look at the latest manufacturing, services, and construction PMI's. These releases can either improve the GBP's fortune as recent week have seen rising unemployment and a contraction in growth for the 4th quarter. A string of positive releases - and the most timely ones - will be important to the outlook and prospect for the Bank of England. Therefore the upcoming week of UK fundamentals will be important for the path of the various GBP crosses.
GBP at Key Levels vs USD and JPY
The GBP/USD has seen a very significant rally over the last 3 weeks - with 11 straight bullish candles - prior to today. In Monday session we saw the pound weaken against the USD, but finding support at around 1.5655. Weaker UK data could see it top off, and reverse some of this strong rally, while positive data (and general positive risk sentiment for the week) can give the GBP/USD a chance to test key resistance at 1.5773.
The GBP/JPY has already pared more than one third of its recent two-week rally. Here the decline started in Friday's session accelerating on Monday. Poor UK fundamentals would give this pair a chance to build on the recent losses.
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Consolidating Losses vs AUD and NZD
Against the AUD and NZD the GBP is in the midst of a consolidation following a sharp slide in late December and early January. If we get some extra clarity on what the Bank of England will do next, following this economic data it could give these crosses a chance to either pull up and further retrace the downswing (if UK data is positive and lessens chance of QE in February) or break the recent lows and push the GBP even weaker against the commodity-higher yielders (this would work best if bad UK data comes amid general risk appetite).
Will Donwtrend vs EUR and CHF Continue
The EUR/GBP and the GBP/CHF pairs have been in choppy downtrend during January. The question here is whether the GBP can use any positive surprises to to reverse these recent losses, or if if softer economic results lead to more speculation of QE which would cause the GBP to sink further against its key European rivals.
Manufacturing PMI Expected to Return to Expansion
Manufacturing PMI is expected to climb above the 50 level separating expansion from contraction for the first time in four months in January. The forecast is for a 50.2 reading following December's 49.6.
In the chart above we see that the sector cooled dramatically in 2011 dipping into contractionary territory over the last three months. A rebound back into growth here for this sector would be a welcome sign after seeing data last week showing the UK economy contracted in the 4Q.
Services PMI To Remain at Levels Suggesting Rebound
The services PMI is expected to continue to show the sector is expanding, with the consensus reading of 53.6. In December the services PMI was at 54.0, so January is expected to show a bit of deceleration.
