GBP/USD – Edges Higher as UK & US Numbers Falter

GBP/USD has rebounded partially from Tuesday’s sharp losses, as the pound has posted gains against the US in Wednesday trading. The British currency lost over one cent on Tuesday, closing at 1.5108. The pound has pushed back, and was trading around 1.5150 early in the North American session. In economic releases, both the UK and US disappointed the markets, with weak key releases.  

Wednesday saw weak numbers for both the US and UK, continuing this week’s downward trend. In the UK, Construction PMI improved from 46.8 points to 47.2, but this was short of the estimate of 47.7. This reading comes just a day after British Manufacturing PMI fell short of the estimate, and the pound took a tumble as a result. So far, the weak Construction PMI has not had the same negative impact on the pound. The UK also released the BOE Credit Conditions Survey. The report found that small companies showed a sharp drop in demand for credit, as businesses are nervous about the UK’s sputtering economy. There was more disappointing news from another credit indicator, as Housing Equity Withdrawal declined by 8.6 billion pounds, way off the estimate of -7.4 billion. The markets will be keeping a close eye on the Bank of England, which will announce its interest rate and asset purchase levels on Thursday.

In the US, the news was not good, as key releases continue to slip. The ADP Non-Farm Employment Change dropped sharply to 158 thousand from 198 thousand, surprising the markets, which had anticipated a much larger gain of 203 thousand. ISM Non-Farm Manufacturing PMI also looked weak, falling from 56.0 points to 54.4. The estimate stood at 55.9. This PMI comes on the heels of the ISM Manufacturing PMI, which also missed the estimate. US key releases have now missed expectations since early last week. The disappointing numbers have been in a range of sectors, and will likely raise red flags in the markets as to the extent of the US recovery.

The Cyprus bailout agreement may have been signed, but the drama continues and questions remain. Strict capital controls are still in place in Cyprus in order to prevent a run on the banks. Under the agreement, bank deposits below EUR1000,000 are safe, but larger accounts with the Bank of Cyprus will be facing a haircut of up to 60%. An amount of 37.5% of these deposits will be converted into bank shares, and up to 22.5% more could be grabbed in order to prop up the Bank of Cyprus’ reserves. This steep tax is expected to have a strong negative impact on the country’s business sector, and the government has admitted that the country is in recession. In order to help the ailing economy, the government plans to lift a ban on casinos and provide tax exemptions on business profits that are reinvested on the island. President Nicos Anastasiades has acknowledged that the bailout agreement is a bitter pill for Cypriots, but said that refusing the agreement would have meant the collapse of the banking sector and could have led to Cyprus’ exit from the Eurozone.

GBP/USD for Wednesday, April 3, 2013

GBP/USD April 3 at 14:30 GMT

1.5139 H: 1.5157 L: 1.5076

GBP/USD Technical

The pound has posted some gains against the US in Wednesday trading. On the downside, the pair is testing the 1.5138 line. There is stronger support at 1.5053. This is an important line which is protecting the 1.50 level. On the upside, the pair faces resistance just above the 1.52 line, at 1.5203. This is followed by resistance at 1.5309. This line has remained intact since mid-February.

• Current range: 1.5138 to 1.5203

Further levels in both directions:

• Below: 1.5138, 1.5053, 1.4988, 1.4880 and 1.4818
• Above: 1.5203, 1.5309, 1.5392 and 1.5461

OANDA’s Open Positions Ratios

The GBP/USD ratio is showing little activity in Wednesday trading. The ratio continues to have a solid majority of long positions, indicative of a bias by traders to the pound continuing to push higher. If the upward trend continues, we can expect the ratio to point to movement in favor of long directions.

GBP/USD has been showing quite a bit of movement this week, and we could the fluctuations continue as the markets follow the BOE as its sets the levels of the interest rate and asset purchases. As well, the UK will release Services PMI on Thursday morning. This key release is a potential market mover, and a reading which is not in line with market expectations could affect the direction of GBP/USD.

GBP/USD Fundamentals

• 8:30 British Construction PMI. Estimate 47.7 points. Actual 47.2 points
• 8:30 British BOE Credit Conditions Survey
• 8:32 British Housing Equity Withdrawal. Estimate -7.4B. Actual -8.6B
• 12:15 US ADP Non-Farm Employment Change. Estimate 203K. Actual 158K.
• 14:00 US ISM Non-Manufacturing PMI. Estimate 55.9 points. Actual 54.4 points.
• 14:30 US Crude Oil Inventories. Estimate 1.8M
• 21:00 US FOMC Member James Bullard Speaks

*Key releases are highlighted in bold

*All release times are GMT

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