GBP/USD – Greenback Battles Back With Solid Unemployment Data

The British pound has had its way all week with the struggling US dollar, but the tide has turned in Thursday trading, as GBP/USD has posted losses. The pair dropped is trading in the mid-1.61 range in North American session. In economic news, British Services PMI came in just shy of the estimate, while US Unemployment Claims beat the forecast. ISM Non-Manufacturing PMI failed to follow suit, dropping to a three-month low. Meanwhile, the government shutdown continues as Congress has been unable to reach an agreement to end the budget stalemate.

The US shutdown continues to grip the country, as the battle over the federal budget drags on. With the government lacking funds to operate, it has been forced to close non-essential services and send almost a million government workers home. The Republicans and Democrats are entrenched in their positions, but public resentment may force the politicians to get their act together quickly. If things are resolved sometime this week, it will have been more of a nuisance than a crisis. However, a much more serious crisis could occur in two weeks if Congress doesn’t reach an agreement on raising the debt ceiling. If that happens, the Treasury would be unable to pay all of its bills, and the economic fallout could be tremendous. With all the bad blood between the Democrats and Republicans, reaching an agreement on the debt ceiling could prove a difficult task.

The Federal Reserve surprised the markets in September when it didn’t taper QE, and the next dates to circle are October 29- 30, when the Fed holds its next policy meeting. Employment data will be an important factor in the Fed’s decision later this month. This week’s employment numbers were mixed. ADP Non-Farm Employment Change did not impress in September. The indicator dropped from 176 thousand in August to 166 thousand in September, a four-month low. The estimate stood at 177 thousand. There was better news from Unemployment Claims, as the key indicator rose slightly to 308 thousand, but beat the forecast of 315 thousand. Due to the shutdown, Friday’s Non-Farm Employment Change release has been cancelled.

After a strong run by British PMIs in recent months, have these key indicators run out of steam? Earlier in the week, Manufacturing and Services PMIs both posted declines and missed their estimates. On Thursday, Services PMI came in at 60.3 points, down a bit from the previous reading of 60.5 points. The estimate stood at 60.4 points. All three of this week’s PMIs posted strong readings, but the markets could get nervous if additional UK releases point lower. Meanwhile, the pound has put on an impressive rally, gaining close to seven cents against the US dollar in little more than a month.

GBP/USD for Thursday, October 3, 2013

GBP/USD October 3 at 14:40 GMT

GBP/USD 1.6170 H: 1.6241 L: 1.6164

GBP/USD Technical

• GBP/USD has lost ground in Thursday trading. The pair dropped below the 1.62 line in the European session and continues to fall in North American trading.
• The pair is receiving support at 1.6125. Next is a support level at the significant level of 1.6000.
• On the upside, the pair is facing resistance at 1.6231, which has reverted from a support role. This is followed by resistance at 1.6300.
• Current range: 1.6125 to 1.6231

Further levels in both directions:

• Below: 1.6125, 1.6000, 1.5877, 1.5756, 1.5645 and 1.5527
• Above: 1.6231, 1.6300, 1.6421, 1.6504 and 1.6573

OANDA’s Open Positions Ratio

The GBP/USD ratio has reversed positions, and is pointing to movement towards short positions in Thursday trading. This is reflected in the pair’s current movement, as the dollar is moving higher. The ratio is comprised of a majority of short positions, which reflects a bias in favor of the US dollar continuing to post gains at the expense of the pound.

The US dollar has erased this week’s losses against the pound with a strong showing on Thursday. With no major releases out of the UK or UK today, it could be a quiet North American session for the pair.

GBP/USD Fundamentals

• 7:00 Halifax HPI.  Estimate 0.3%. Actual 0.6%. 
• 8:30 British Services PMI. Estimate 60.5 points. Actual 60.3 points.
• 11:30 US Challenger Job Cuts.
• 12:30 US Unemployment Claims. Estimate 315K. Actual 308K.
• 14:00 US ISM Non-Manufacturing PMI. Estimate 57.2 points. Actual 54.4 points.
• 14:30 US Natural Gas Storage. Estimate 96B. Actual 101B.
• 17:30 US FOMC Member Jerome Powell Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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