GBP/USD – Pound Edges Lower Ahead of British Inflation Data

GBP/USD is showing some movement as we begin the week. The pair crossed above the 1.57 line in Monday’s European session, and climbed as high as 1.5750 before edging lower. The pound had an excellent week, gaining about two cents at the expense of a broadly weakened dollar. In economic news, Rightmove HPI was sharply lower, dropping to a five-month low. In the US, Friday’s UoM Consumer Sentiment was a disappointment but PPI rose nicely. On Monday, Empire Manufacturing Index climbed to its highest level in almost a year. There are no British releases on Monday, but the markets are waiting for a host of inflation numbers on Tuesday, including CPI. 

The week is starting slow. In the US, the Empire Manufacturing Index has been volatile, with sharp swings in both directions in recent releases. The index bounced back from a disappointing release in May of -1.4 points, and climbed to 7.8 points. This surprised the markets, which had expected a gain of just 0.4 points. The first UK release of the week was Rightmove HPI, which had looked very steady, with two consecutive gains of 2.1%. However, the housing inflation index dropped sharply, with a gain of just 1.2% in the June release. On Tuesday, the markets will get a good look at British inflation data, with the release of six indicators, including CPI, which is one of most important economic releases.

The spotlight will soon shift to the US Federal Reserve, which will release a policy statement on Wednesday. What the Fed might do with QE has become a hot issue for the markets and there is growing speculation that the Fed could tighten QE in the near future. Currently the Fed purchases $85 billion in assets every month. The Fed has said that it won’t make a move until the US economy improves, so every strong US release seems to result in more speculation that the Fed will press the trigger. A tightening of QE is dollar positive, so any action or even hints from the Fed in this regard could boost the dollar against the major currencies.

GBP/USD for Monday, June 17, 2013

GBP/USD June 17 at 14:30 GMT

GBP/USD 1.5718 H: 1.5752 L: 1.5692

GBP/USD Technical

The pound continues to look sharp, as GBP/USD is trading in the low-1.57 range. Will it sustain this upward momentum? The round number of 1.57 has seen a lot of activity and is currently providing weak support. This is followed by a strong support level at 1.5557. On the downside, the next line of resistance is at 1.58. If the pair can breach this important barrier, this will fuel speculation about a run towards the 1.60 level. The next line of resistance is at 1.5869.

• Current range: 1.5700 to 1.5800

Further levels in both directions:

• Below: 1.5700, 1.5557, 1.5432, 1.5309, 1.5203 and 1.5111
• Above: 1.5800, 1.5869, 1.5916 and 1.60

OANDA’s Open Positions Ratio

GBP/USD ratio has started the week with movement towards short positions. This is consistent with the movement of the pair in the North American session, as the pound has edged lower. Short positions have a solid majority, indicating a strong bias towards the pair pushing in a downward direction.

The pound continues to look strong as it trades above the 1.57 line. We could see more volatility from the pair on Tuesday, with both the US and UK releasing key inflation data.

GBP/USD Fundamentals

• 12:30 US Empire State Manufacturing Index. Estimate 0.4 points. Actual 7.8 points.
• 14:00 US NAHB Housing Market Index. Estimate 45 points. Actual 52 points.
• Day 1 of G8 Meetings.

*Key releases are highlighted in bold

*All release times are GMT

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