GBP/USD – Higher After Dismal US GDP Release, Solid UK Data

GBP/USD has moved higher as the markets digest a very weak US GDP release on Wednesday. On a more positive note, the ADP Non-Farm payrolls easily beat the estimate. The Federal Reserve is scheduled to release a statement following the conclusion of its policy meeting. In the UK, Net Lending to Individuals looked impressive, hitting its highest level since October. The M4 Money Supply also was sharp, easily beating expectations.

The markets have been busy on Wednesday, with a host of data from the US and UK. The markets got a rude shock as US Advance GDP for Q4 was a disaster, declining by 0.1%. This was nowhere near the estimate of a 1.1% gain. The GDP reading was the key indicator’s first decline since 2009, and there is bound to be market fallout from this reading. There was better news on the employment front, which has looked sharp recently. ADP Non-Farm Employment Change (which precedes the official US government release) dropped in December to 192 thousand. However, this easily exceeded the market forecast of 164 thousand. In the UK, Wednesday’s data was very positive. Net Lending to Individuals bounced back after two straight declines, jumping to GBP 1.7 billion. This surprised the markets, which had anticipated a gain of GBP 0.9 billion. The M4 Money Supply posted its highest gain since last February, with a 0.7% gain. The market estimate stood at 0.2%. Mortgage Approvals also had its best performance since February, coming in at 56 thousand. This beat the forecast of 55 thousand.

The markets will be closely monitoring Wednesday’s Federal Reserve Statement, as the Fed wraps up an important two-day policy meeting. The Fed continues to do its best to bolster the bumpy recovery, and increased its purchases of securities in January from $40 billion to $85 billion. This has pushed the Fed’s balance sheet to a record $3 trillion. Despite these measures, the US recovery remains slow, and unemployment is still high at 7.8%. Minutes from the most recent FOMC pointed to members being divided between those in favor of ending QE in mid-2013, versus those who wish to continue it to a later date. When the Fed implemented the most recent round of QE, it stated that it would continue until unemployment fell to 6.5%. Most analysts are predicting that the Fed will reaffirm this stance at the conclusion of today’s meeting.

US economic indicators continue to point in all directions, to the dismay of the markets. Recent employment and retail sales numbers have been very positive, but this has been offset by weak housing and manufacturing data. Consumer confidence is also on the wane, as seen in Tuesday’s CB Consumer Confidence release. The key indicator dropped sharply to 58.6 points, its worst showing in over a year. The markets had expected a much higher reading of 64.8 points. Today’s weak GDP and strong employment data underscore that that US recovery is having trouble gaining traction and sustaining postive momentum.

GBP/USD for Wednesday, Jan 30, 2013

GBP/USD January 30 at 15:30 GMT

1.5783 H: 1.5799 L: 1.5725

GBP/USD Technical

The pound has edged higher against the US dollar, and tested the 1.58 level earlier in the European session. The pair continues to test resistance at 1.5785. This line was already breached on Wednesday, and will likely see more action during the day. This is followed by resistance at 1.5850. On the downside, 1.5728 is providing support. Given the volatility of the pair, it cannot be considered safe. The next support level is at 1.5685.

Current range: 1.5728 to 1.5785.

Further levels in both directions:

• Below: 1.5728, 1.5685, 1.5625, 1.5568, 1.5481 and 1.5395.
• Above: 1.5785, 1.5850, 1.5919, 1.5975, 1.6062 and 1.6135.

OANDA Open Positions Ratio

The GBP/USD ratio continues to show strong movement towards long positions. This is reflected in the current movement of the currency pair, with the pound making some gains against the US dollar. Traders sentiment is strongly biased in favor of long positions, indicating expectations for the British pound to continue to improve.

The pound has managed to turn the tables on the US dollar, and has gained about a cent since Tuesday. Will the upward swing continue?  We could see the fluctuation continue as the markets react to today’s releases. While UK data was positive, US GDP looked dreadful, although the employment news was good. Any surprises from the Fed could also affect the direction of GBP/USD.

GBP/USD Fundamentals

• 9:30 UK Net Lending to Individuals. Estimate 0.9B. Acutual 1.7B.
• 9:30 UK M4 Money Supply. Estimate 0.2%. Actual 0.7%.
• 9:30 UK Mortgage Approvals. Estimate 55K. Actual 56K.
• 13:15 US ADP Non-Farm Employment Change. Estimate 164K. Actual 192K.
• 13:30 US Advance GDP. Estimate 1.1%. Actual -0.1%.
• 13:30 US Advance GDP Price Index. Estimate. 1.5%. Actual 0.6%.
• 15:30 US Crude Oil Inventories. Estimate 2.9M. Actual 5.9M.
• 19:15 US FOMC Statement.
• 19:15 US Federal Funds Rate. Estimate <0.25%.

*Key releases are highlighted in bold

*All release times are GMT

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