GBP/USD – Pound Rally Continues As US Housing Data Disappoints

The British pound has picked right up where it ended last week, posting gains in Monday trading. GBP/USD has pushed above the 1.65 in the North American session. In economic news, British Housing Equity Withdrawal improved in November to -10.4 billion pounds, but was well off the market estimate of -7.2 billion. In the US, Pending Home Sales gained just 0.2%, well off the  estimate of 1.1%.

US Pending Home Sales did not impress, gaining just 0.2% in November. This was well short of the forecast of 1.1%. However, the modest gain broke a string of five straight declines, so perhaps the key indicator has turned the corner on its recent downward spiral. Last week’s housing data looked much stronger, as New Home Sales beat the forecast.

A quiet holiday week didn’t stop the pound from posting gains against the US dollar. Low liquidity over a holiday period can lead to strong currency movements, and we got a taste of that on Friday. The pound shot up about 160 points before retracting to lower levels. As well, the recent Fed taper decision has fuelled a “risk on” atmosphere which has led to increased selling of the safe-haven US dollar and boosted the pound. With thin trade likely this week as well due to the holidays, we could see further volatility from GBP/USD.

US Unemployment Claims dropped sharply on Thursday. The indicator fell to 338 thousand, down from 379 thousand in the previous release. The estimate stood at 346 thousand. The sharp reading was a dramatic reversal from numbers over the past two weeks, which were much higher than the forecast. With the Federal Reserve poised to begin its long-awaited QE taper next month, employment releases have taken on added significance. If the labor market continues to improve, we are likely to see further QE reductions in 2014, which would give a boost to the US dollar against its major rivals.

There was some holiday cheer from US releases last week, as manufacturing and housing numbers pointed upwards. Core Durable Goods Orders posted a strong gain of 1.2%, its best showing since April. The key manufacturing indicator had posted four consecutive declines, so the sharp gain was welcome news. Durable Goods Orders bounced back from a sharp decline in October with a gain of 3.5%, well above the estimate of 1.7%. New Homes Sales also impressed with a five-month high, climbing to 464 thousand. The estimate stood at 449 thousand.

GBP/USD for Monday, December 30, 2013

GBP/USD December 30 at 17:55 GMT

GBP/USD 1.6516 H: 1.6533 L: 1.6460

GBP/USD Technical

• GBP/USD has posted gains in Monday trading. The pair broke above the 1.65 line early in the North American session as the pound continues to put pressure on the retreating dollar.
• 1.6476 is providing support. This is followed by support at the round number of 1.6300.
• On the upside, the pair is facing resistance at 1.6600. This is followed by resistance at 1.6705.
• Current range: 1.6476 to 1.6600

Further levels in both directions:

• Below: 1.6476, 1.6300, 1.6231, 1.6125 and 1.6000
• Above: 1.6600, 1.6705, 1.6964 and 1.7182

OANDA’s Open Positions Ratio

GBP/USD ratio is pointing to gains in long positions in Monday trading. This is consistent with the pair’s movement, as the pound continues to climb to higher levels. A large majority of the open positions are short, indicative of a trader bias towards the dollar reversing directions and moving upwards.

The pound continues to roll and is trading above the 1.65 level. GBP/USD has moved higher in the North American session, as the dollar remains under pressure, continuing the trend we have seen for the past week.

GBP/USD Fundamentals

• British Housing Equity Withdrawal. Estimate -7.2B. Actual -10.4B.
• 15:00 US Pending Home Sales. Exp. 1.1%. Actual 0.2%.

*Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.