6 Jul 2009

GU Analysis:
The pound posted its first weekly decline against the dollar in a month after worse-than-expected reports on U.K. services and gross domestic product signaled the economic recovery may be faltering.

Manufacturing, consumer confidence and inflation data this week will provide insights into the state of the U.K. economy and the scope of a recovery. Slower output growth and declining prices will add to the bearish outlook that is beginning to form, while a increase in consume confidence will give hope that a return of domestic growth is around the corner. Additionally, the Visible Trade Balance report will show us that state of demand for British goods.

There is no major UK news today and that left only the US ISM Non-Manufacturing PMI at 2200 SGT. Looking ahead to Monday, data may show that conditions in US non-manufacturing sector - which accounts for approximately 70 percent of total economic activity in the country and includes retail, services, and finance - improved somewhat in June as the Institute for Supply Management index is estimated to rise to 46.0 from 44.0. However, consumer confidence has shown emerging pessimism, primarily on the economic outlook, as the Conference Board’s measure surprisingly fell to 49.3 in June from 54.8. Since risk trends have proven to be the greater driver of price action in the forex markets, a weaker than expected result could trigger flight-to-quality and thus, gains for the US dollar.

From the technical point of view, at the daily chart, pound has broke below the daily EMA21. If the direction does not reverse, it would gain support at EMA55 at 1.61. Resistance is at 1.6395.

Trend: Down, watch out for PMI news and that may set direction for the pound.