GBP/USD Pound Improves After Recent Battering

After suffering sharp losses on Monday, the British pound has improved against the US dollar in Tuesday trading. GBP/USD was trading in the 1.5770 range. US housing data came in as expected, but CB Consumer Confidence slumped, dropping to its lowest level in over a year. There are no UK releases on Tuesday.

US releases continue to paint a confusing picture about the direction of the US economy. Core Durable Goods Orders posted a lower gain than in the previous reading. However, the rise of 1.3% easily beat the estimate of 0.8%. Durable Goods Orders looked even better, jumping 4.6%. This crushed the estimate of a 1.8% gain. The markets were pleased with the strong manufacturing data, but the housing numbers that followed were a big disappointment. Pending Home Sales plunged by 4.3%, the indicator’s worst showing since last May. This followed a very weak New Homes Sales Release late last week. The two key housing indicators points to weakness in the US housing industry, a critical component for economic growth. However, there was some good news as well, as the S&P/CS Housing Price Index rose a robust 5.5%, matching the market forecast. The highlight release, CB Consumer Confidence, looked awful. The key consumer indicator dropped sharply to 58.6 points, way below the estimate of 64.8 points. It was the indicator’s worst showing since October 2011, and again raises questions about the extent of the US recovery.

The markets are closely following developments at the Federal Reserve, which is holding an important two-day policy meeting. The Fed 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%. The markets will be paying close attention to the Fed’s take on the economy, with the markets hoping to hear a hint about when the Fed might end its current round of QE. Minutes from the most recent FOMC pointed to members being divided between those in favor of ending QE in mid-2013, versus those who wish to continue it to a later date. Any unexpected announcements from the Fed meeting could affect the movement of AUD/USD.

In the UK, 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”. The referendum announcement underscores British determination to reevaluate its ties with Europe, and the move will likely strain ties with EU heavyweights Germany and France.

GBP/USD for Tuesday, Jan 29, 2013

GBP/USD January 29 at 15:40 GMT

1.5758 H: 1.5774 L: 1.5693

GBP/USD Technical

The pound has managed to reverse the downward trend, as it broke above the 1.57 level and is pushing higher. GBP/USD is receiving weak support at 1.5728. There is stronger 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, 1.5785 is providing resistance. This line could face more pressure if the pound continues to push higher. There is strong resistance at 1.5919.

Current range: 1.5728 to 1.5785.

Further levels in both directions:

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

OANDA’s Open Positions Ratios

The GBP/USD ratio has resumed activity, with movement towards long positions. This is keeping in line with the current trend of the currency pair, as the pound has made some gains against the US dollar. If the upward trend continues, we can expect more movement in the ratio.

The pound has now erased most of its losses incurred in Monday’s trading. Will the upward move continue? Today’s highlight is the Federal Reserve policy meeting, and any developments from the US central bank could have a major impact on the US dollar.

GBP/USD Fundamentals

• 14:00 US S&P/CS Composite-20 HPI. Estimate. 5.5%.  Actual 5.5%.
• 15:00 US CB Consumer Confidence. Estimate 64.8 points. Actual 58.6 points.

*Key releases are highlighted in bold

*All release times are GMT

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