GBP/USD – Pound Kicks Off Week With Sharp Losses

GBP/USD has posted sharp losses in Monday trading. The pair has lost over one cent on the day, trading in the low-1.63 range in the North American session. The pound remains under pressure after Friday’s weak British Manufacturing Production, which slid to a three-month low. Monday has a very light schedule, with the only release being the US Federal Budget.

US employment numbers started 2014 on a positive note, but Friday’s Non-Farm Payrolls was dismal, posting its lowest gain since May 2012. The key employment indicator dropped to just 74 thousand, down from 203 thousand a month earlier. This was nowhere near the estimate of 196 thousand.  Although the unemployment rate dropped to 6.7%, this was due to a drop in the participation rate, which fell to 62.8%, its lowest level since 1978. This figure points to a worrying trend of a jobless US recovery.

Friday’s disappointing Non-Farm Payrolls report may create some concern in the markets, but is unlikely to change the Federal Reserve’s path of tapering QE, which it started just this month. In December, outgoing Fed chair Bernard Bernanke strong hinted that the Fed planned to wind up QE by the end of 2014, reducing the asset-purchase program by increments of $10 billion at each meeting. The Fed next meets for a policy meeting on January 28, and the question is will the Fed reduce QE by another $10 billion, down to $65 billion each month. Most analysts feel that one bad employment report will not affect the taper schedule and we will see a reduction in QE at the next meeting.  

In the UK, British Manufacturing Production was a major disappointment, as the key indicator dropped to 0.0%, down from 0.4% a month earlier. The estimate stood at 0.4%. BRC Retail Sales continues to post smaller gains each month, as the December reading dropped to 0.4%. The indicator has been slowing down since July, when we saw a strong gain of 2.2%. NIESR GDP remained steady, posting a 0.7% gain in December, which was down slightly from 0.8% in November.

There were no surprises from the BOE on Thursday, which set the QE and interest rate levels for January. QE remains at 375 billion pounds, while the benchmark interest rate stays at 0.50%, where it has been pegged since 2009. The BOE has said that it will not raise rates before the unemployment level falls below 7%, but with that target within reach sometime in 2014, much earlier than forecast by the BOE, the central bank may lower the unemployment rate threshold to 6.5%.

GBP/USD for Monday, January 13, 2014

GBP/USD January 13 at 16:05 GMT

GBP/USD 1.6382 H: 1.6508 L: 1.6347

GBP/USD Technical

• GBP/USD has posted sharp losses in Monday trading. The pair posted dropped sharply in the European session, but has steadied in North American trading.
• 1.6416 has reverted to a resistance role as the pound trades at lower levels. This is a weak line which could see more activity during the day. This is followed by a stronger resistance line at 1.6549.
• 1.6329 is the first line of support. This is followed by support at 1.6231.
• Current range: 1.6329 to 1.6416

Further levels in both directions:

• Below: 1.6329, 1.6231, 1.6125 and 1.6000
• Above: 1.6416, 1.6549, 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 not reflected in the pair’s movement, as the pound has sustained sharp losses against the dollar. A large majority of the open positions in the GBP/USD ratio are short, indicative of a trader bias towards the dollar continuing to move higher.

The pound has lost over a cent in Monday trading, following sharp losses in the European session. The currency has edged higher early in the North American session.

GBP/USD Fundamentals

19:00 US Federal Budget Balance. Exp. 44.3B.

*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.