GBP/USD – Pound Crashes Below 1.52 Line

GBP/USD continues to tumble, and has fallen below the 1.52 line. In Wednesday’s North American session, the pair is struggling in the mid-1.52 range. The US dollar received a boost after posting strong GDP and ADP Non-Farm Employment releases. On Tuesday, British GfK Consumer Confidence and BRC Shop Price Index both posted weak releases. There are no UK releases on Wednesday.

The pound has been unable to find its footing and has lost over 200 points against the dollar this week. The downward spiral continued as key US releases were positive. The pound has now coughed up about 130 points since the start of the week. ADP Non-Farm Employment Change, which precedes the all-important official Non-Farm Employment Change on Friday, climbed from 188 thousand to 200 thousand. This was the indicator’s strongest showing since January, and convincingly beat the estimate of 179 thousand. Advance GDP also got the job done, posting a strong gain of 1.7% for Q2. The Q1 reading was much higher, at 2.5%, but the markets were pleased, as the estimate stood at 1.1%. We’ll get a look at more key employment releases on Thursday and Friday, and strong data could revive talk about QE tapering, which would be a dollar-positive event.

Tuesday’s weak UK releases were not much help for the struggling pound. GfK Consumer Confidence, which has been mired deep in negative territory, did improve from -22 to -16 points, but continues to indicate deep pessimism on the part of the British consumer. BRC Shop Price Index posted a decline of -0.5%, its worst showing this year. The markets are hoping that UK releases can get back on track with Manufacturing PMI on Thursday. The key index has looked solid recently, with two straight readings over 50, indicating expansion in the manufacturing sector.

Also in the US, CB Consumer Confidence, a key release, dropped slightly to 80.3 points. This was short of the estimate of 81.1 points, but with a reading of above 80 points, the indicator remains in very high territory in comparison to the levels we saw earlier in 2013. Keeping in mind that last week’s UoM Consumer Sentiment hit a multi-year high, consumer confidence is looking rosy in the US. The key question is will stronger consumer confidence translate into more borrowing and spending, which would bolster job growth and increase economic activity.

On Thursday, the Bank of England will be in the spotlight, as the central bank sets the benchmark interest rate and bond-purchase program. Most analysts expect no changes to current levels, with interest rates pegged at a record low of 0.50% and the bond purchase program at 375 billion pounds. With the recent change in top management at the BOE, new governor Mark Carney will be under a lot of scrutiny. Carney has the respect and attention of the markets, as his tenure at the Bank of Canada was widely judged as a success. Analysts note that Carney practiced forward guidance at the BOC, and is expected  to continue his pro-active approach at the BOE.

GBP/USD for Wednesday, July 31, 2013

GBP/USD July 31 at 14:30 GMT

GBP/USD 1.5187 H: 1.5244 L: 1.5127

GBP/USD Technical

GBP/USD continues to drop, and touched a low of 1.5127 in the European session before bouncing higher. GBP/USD is receiving support at 1.5111. This is not a strong line and could find itself under pressure if the pair’s downward trend continues. The next support line is at the critical line of 1.5000. This line has remained intact since early July. On the upside, the pair faces resistance at 1.5203, protecting the 1.52 line. This is followed by resistance at 1.5309.

• Current range: 1.5111 to 1.5203

Further levels in both directions:

• Below: 1.5111, 1.5000, 1.4896 and 1.4781
• Above: 1.5203, 1.5309, 1.5432, 1.5527, 1.5645 and 1.5756

OANDA’s Open Positions Ratio

GBP/USD ratio is showing little change on Wednesday, continuing a trend we have seen all week. This is not reflected in what we are seeing from the pair, as the pound continues to lose ground against the US dollar. Short positions make up a majority of the ratio, a sharp contrast to what we saw in early July, when long positions dominated. This is indicative of a slight bias in favor of the pound reversing direction and posting gains against the dollar.

Strong data out of the US has boosted the dollar against the struggling pound on Wednesday. We could see further activity from the pair, with the FOMC releasing a policy statement later in the day.

GBP/USD Fundamentals

• 12:30 US Advance GDP. Estimate 1.1%. Actual 1.7%.
• 12:30 US Advance GDP Price Index. Estimate 1.1%. Actual 0.7%.
• 12:30 US Employment Cost Index. Estimate 0.4%. Actual 0.5%.
• 13:45 US Chicago PMI. Estimate 53.7 points. Actual 52.3 points.
• 14:30 US Crude Oil Inventories. Estimate -21.M.
• 18:00 US FOMC Statement.
• 18:00 US Federal Funds Rate. Estimate <0.25%.

*Key releases are highlighted in bold

*All release times are GMT

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