GBP/USD – Pound Edges Lower, Tests 1.55

GBP/USD continues to lose ground in Thursday trading. The pair is trading is testing the 1.55 line in Thursday’s North American session. Taking a look at economic releases, US releases looked solid on Thursday. Preliminary GDP beat the estimate while Unemployment Claims practically matched the forecast. In the UK, the lone release today is GfK Consumer Confidence. The markets are anticipating another reading deep in negative territory.

In the US, Preliminary GDP for Q2 looked good, posting a healthy gain of 2.5%. This was slightly above the Q1 reading of 2.4% and beat the estimate of 2.2%. Unemployment Claims dropped slightly to 331 thousand, just shy of the estimate of 330 thousand. With continuing speculation about when the Federal Reserve will ease up on QE, every employment release is being closely scrutinized by the markets.

The markets are nervous as investors brace for a likely military strike by the US against Syria. The US has vowed to respond after a chemical attack in the war-torn country, apparently by the Syrian regime, killed hundreds of civilians. There are fears that a US attack could elicit a response from Syria or even Iran, so traders should expect to see volatility in the markets. There has been a report that the US may choose to strike on the weekend, which would give the markets time to adjust before opening on Monday. The uncertainty has boosted the US dollar against the major currencies, although USD/CAD has not shown much activity.

The Federal Reserve has not given many clues about when it might taper QE, but the recent Jackson Hole summit provided a glimpse of the divisions in the Fed as to when it might act. Fed chair Bernard Bernanke was a no-show at the summit, giving other policymakers an opportunity to express their views on QE. Dennis Lockhart, head of the Atlanta Fed, said that tapering could start in September, but only if US data justified such a move. There was a more hawkish statement from James Bullard, head of the St. Louis Fed. Bullard said that there was no need for the Fed to rush into QE tapering. Bullard will make two appearances on Thursday, so we could see some reaction from the markets to his remarks. Meanwhile, the uncertainty over QE tapering has boosted the US dollar, raised the yields on US treasury bonds and led nervous investors to pull billions of dollars out of emerging markets. With September just around the corner, we could see strong volatility in the markets as speculation over QE heats up.

In the UK, BOE head Mark Carney said at a conference in Nottingham that the BOE is prepared to add stimulus if market expectations for higher interest rates affect the economy’s recovery. As the new head of the BOE, Carney has introduced forward guidance, in which the BOE has communicated that it plans to keep the benchmark interest rate at a record low of 0.50% until 2015 at the earliest. However, many investors believe the BOE could raise rates much sooner, given the improving UK economy and likely QE tapering by the US Federal Reserve. This has led to a rise in the yields of UK government bonds.

GBP/USD for Thursday, August 29, 2013

GBP/USD August 29 at 16:55 GMT

GBP/USD 1.5489 H: 1.5549 L: 1.5483

GBP/USD Technical

• GBP/USD has posted modest losses in Thursday trading. The pair touched a high of 1.5549 in the Asian session, but has since dropped, and crossed below the 1.55 line in the European session.
• GBP/USD is facing resistance at 1.5527. This is a weak line and could face pressure if the pound moves higher. Next, there is resistance at 1.5645.
• On the downside, the GBP/USD is testing support at 1.5432. This is followed by a stronger support at 1.5309, which is protecting the 1.53 line.
• Current range: 1.5432 to 1.5527

Further levels in both directions:

• Below: 1.5432, 1.5309 and 1.5203
• Above: 1.5527, 1.5645, 1.5756, 1.5877 and 1.6000

OANDA’s Open Positions Ratio

The GBP/USD ratio is showing movement towards long positions in Thursday trading. This is not reflected in the current movement of the pair, as GBP/USD has moved slightly lower. The ratio has a large majority of short positions, which reflects a strong bias in favor of the US dollar posting gains against the pound.

GBP/USD remains under pressure, as it tests the 1.55 line. We could see the pair continue to stay close to this level in the North American session.

GBP/USD Fundamentals

• 12:30 US Preliminary GDP. Estimate 2.2%. Actual 2.5% 
• 12:30 US Unemployment Claims. Estimate 330K. Actual 331K.
• 12:30 US Preliminary GDP Price Index. Estimate 0.7%. Actual 0.8%.
• 12:50 US FOMC Member James Bullard Speaks.
• 14:30 US Natural Gas Storage. Estimate 65B. Actual 67B.
• 23:45 US FOMC Member James Bullard Speaks.
• 23:50 British GfK Consumer Confidence.

*Key releases are highlighted in bold

*All release times are GMT

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