GBP/USD – Loses Ground After Recent Gains

GBP/USD continues to be active, and has lost ground in Monday trading. The pair has dropped below the 1.53 line early in the North American session. The pound gained about 150 points last week, as US releases continued to falter. However, it has coughed up some of those gains early in the new trading week. The UK will release the BRC Sales Monitor and the RICS House Price Balance later on Monday. The markets will be more interested in Manufacturing Production, a key release, which will be published on Tuesday morning. In the US, today’s only release is a speech by Fed Reserve head Bernard Bernanke. He will address a conference hosted by the Federal Reserve of Atlanta.

The disappointing numbers out of the US has resulted in talk of a deepening recovery being replaced by concerns about the direction the economy. With every major release over the past two weeks failing to meet expectations, the markets are justifiably becoming increasingly anxious. The data comes from sectors throughout the economy – housing, manufacturing consumer confidence and employment releases have all missed their estimates. Will we see a turnaround in this week’s numbers? If not, we could see some volatility in the currency markets.

The problems affecting the US has been good news for the pound, which not long ago found itself languishing in 1.48 territory. The British currency posted sharp gains on Friday, as US Non-Farm Employment Rate looked awful. The key employment indicator posted a gain of just 88 thousand, well off the estimate of 198 thousand. It was the lowest gain since July 2012. Although the US Unemployment rate edged down from 7.7% to 7.6%, this was attributed to a sharp drop in the participation rate.

The drama and uncertainty in Cyprus, one of the Eurozone’s smallest members, continues, even though a bailout plan has been accepted by all sides. Strict capital controls are still in place in Cyprus in order to prevent a run on the banks. Under the bailout agreement, bank deposits below EUR100,000 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. In a dramatic development, Cyprus finance minister Michael Sarris resigned. His resignation comes as Cyprus initiates a formal investigation to examine the events which lead to the EUR10 billion bailout.

GBP/USD for Monday, April 8, 2013

GBP/USD April 8 at 15:10 GMT

1.5274 H: 1.5351 L: 1.5274

GBP/USD Technical

The pound has lost ground in Monday trading, and has dropped below the 1.53 line. The pair is facing resistance at 1.5309. This is a weak line, and could face activity if the pound is able to rebound. There is stronger resistance at 1.5392. On the downside, there is strong support at 1.5203. The next support level is at 1.5318.

• Current range: 1.5203 to 1.5309

Further levels in both directions:

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

OANDA’s Open Positions Ratios

The GBP/USD ratio is showing movement towards short positions. This is consistent with the current movement of the pair, as the pound has lost ground against the US dollar. We can expect the movement in the ratio to continue as the pair points downward.

The pound has given up some of its gains from last week, and has fallen below the 1.53 level in Monday trading. The markets are keeping a close eye on Tuesday’s British Manufacturing Production, and we could see some volatility from the pair, depending on the reading from this key release.

GBP/USD Fundamentals

• 23:01 British BRC Retail Sales Monitor.
• 23:01 British RICS House Price Balance. Estimate -4%.
• 11:15 US Fed Chairman Bernard Bernanke Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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