GBP/ USD Forecast Jan. 2-6, 2012, Fundamental Analysis

In the week ended Dec. 30, the GBP/USD showed a sharp decline as the tensions stemming from the euro area enhanced demand on the dollar as a refuge, where the improvement in someU.S. data could not add much positivity to the sentiment.

Although a bond selling inItalywitnessed a decline 10-year bills yields to 6.98% compared with 7.56% in the previous auction, the rate is still near 7%, the rate which triggered bailouts forGreeceandPortugal.

Also, the ECB stated that the balance sheet soared to 2.73 trillion euros, where lending to banks climbed to 879 billion euros in the week ended Dec. 23, raising concerns the ECB will continue its support to banks to avert a financial disaster.

Amid the high demand on the dollar as a favorite safe haven due to the turbulences in European markets, forecasts are in favor of seeing further decline in the pair.

This week the main focus will be the infamous jobs report in theUnited Statesas well as manufacturing, services and minutes of the FOMC meeting. On the flip side, the British economy will release less important data yet focus will be on PMI manufacturing, services and construction.

The release of the data this week will be as follows:

Monday Jan. 2:

Both economies lack economic fundamentals which propose that there would be calm trading on the pair which is predicted to follow the general trend in market as it will not able to get direction from data.

Tuesday Jan. 3:

As of 09:30 GMT, U.K. PMI manufacturing will show a widening contraction to 47.3 in Dec. from the prior 47.6.

In the U.S., at 15:00 GMT, ISM manufacturing for Dec. is expected to show a widening expansion to 53.2 compared with Nov. reading of 52.7, noting that a reading above 50 means expansion and vice versa. At 19:00 GMT, eyes will be in the minutes of the FOMC meeting.

Wednesday Jan. 4:

At 09:30 GMT,U.K.construction is set to show a drop to 52.0 in Dec. from 52.3 in Nov., according to PMI gauge. At the same time, mortgage approvals, M4 money supply and net lending for Nov. will be due.

Thereafter, eyes will be on MBA mortgage applications for Dec. 30 at 12:00 GMT, which will be followed by factory orders at 15:00 GMT with expectations referring to a 2.0% rise in Nov. compared with the prior 0.4% drop.

Thursday Jan. 5:

As of 09:30 GMT, U.K. PMI services will show a narrowing expansion to 51.5 in Dec. from the prior 52.1.

TheU.S.economy will release ADP employment change at 13:15 GMT, where it is expected to decrease to 175,000 in Dec. from the previous 206,000, while initial jobless claims for the week ending Nov. 26 and continuing claims for the week ending Nov. 18 will be available at 13:30 GMT. At 15:00 GMT, ISM non-manufacturing for Dec. is expected to show a widening expansion to 53.0 compared with Nov. reading of 52.0.

Friday Jan. 6:

The week ends with the release of the awaited non-farm payrolls report from the United States, due at 13:30 GMT. Expectations refer that change in non farm payrolls will reach 150,000 in Dec. from the previous 120,000 while unemployment will rise to 8.7% from 8.6%.