GBP/USD – British Pound Continues to Fall, Tests 1.57 Level

The British pound’s woes continue, as GBP tests the 1.57 line. The pound has now plunged 350 points since in the past two weeks. US New Home Sales were weak on Friday, falling to a six-month low. In the UK, Preliminary GDP fell below the estimate. US releases again were a mix, as manufacturing numbers looked sharp, while housing figures were a big disappointment. There are no British economic releases on Monday.

The pound picked up where it ended last week, and is continuing its downward slide. The UK economy continues to sputter, with a disappointing GDP release. The key indicator declined by 0.3% in Q4, failing to meet the estimate of a 0.1% drop. British GDP has now posted 4 declines in the past 5 quarters. In the US, New Home Sales was a major disappointment, dropping to 369 thousand new units. This was well below the forecast of 387 thousand. Monday brought a mix of news. Core Durable Goods Orders dropped to 1.3%, but this was well above the estimate of 0.8%. Durable Goods Orders jumped 4.6%, its best showing since 2008. The estimate stood at 1.8%. However, Pending Home Sales plummeted 4.3%, its sharpest drop since May. The markets had expected a modest gain of 0.5%. This weak reading came on the heels of a dismal New Home Sales release, pointing to ongoing weakness in the US housing sector.

Meanwhile, Prime Minister Cameron announced that he would hold a referendum on whether the UK remained in the European Union. Cameron said this decision was up to the British people, and promised a referendum by 2017, if the Conservatives won the next election. Cameron added that disillusionment with the EU was “at an all time high”, and the referendum announcement is sure to strain ties with EU heavyweights Germany and France.

The US Federal Reserve has not been in the headlines lately, but is busy at work, as it increased its purchases of securities in January from $40 billion to $85 billion. This has pushed  the Fed’s balance sheet to a record $3 trillion. Despite these measures, the US recovery remains slow, and unemployment is still high at 7.8%. Markets are having a tough time trying to gauge to extent of the US recovery, as recent economic data has been both good and bad. The markets will be paying close attention to the Fed’s take on the economy, when it meets for a key policy meeting later this week.

GBP/USD for Monday, Jan 28, 2013

GBP/USD January 28 at 15:15 GMT

1.5710 H: 1.5780 L: 1.5705

GBP/USD Technical

The pound continues to slump, and is testing the 1.57 line. GBP/USD is receiving weak support at 1.5685. This line has not been tested since August 2012, but could fall if the pound continues to lose ground. The next support level is at 1.5625. On the upside, 1.5728 is providing resistance. It is also a weak line. There is stronger support at 1.5785.

Current range: 1.5685 to 1.5728.

Further levels in both directions:

• Below: 1.5685, 1.5625, 1.5568, 1.5481 and 1.5395.
• Above: 1.5728, 1.5785, 1.5850, 1.5919, 1.5975, 1.6062 and 1.6135.

OANDA’s Open Positions Ratios

The pound continues to lose ground against the dollar, but the GBP/USD ratio is almost unchanged since Friday. The majority of open postions remain long, indicating an expectation that we could see a correction and a rebound by the pound.

January has been a miserable month for the pound, which has plunged over five cents against the US dollar. Will the downward trend continue? Recent UK data such as GDP has looked weak, and the US has not been able to show much positive momentum, with readings in all directions. Investors may decide to stick close to the safe-haven dollar, leaving the pound vulnerable to further drops.

GBP/USD Fundamentals

• 13:30 US Core Durable Goods Orders. Estimate 0.8%. Actual 1.3%.
• 13:30 US Durable Goods Orders. Estimate 1.8%. Actual 4.6%.  
• 15:00 US Pending Home Sales. Estimate 0.5%. Actual -4.3%.

*Key releases are highlighted in bold

*All release times are GMT

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