GBP/USD – Pound Drops Sharply as Market Worries Grow

The British pound has started the news trading week in poor form, losing over a cent in Monday trading. GBP/USD was trading the 1.5670 range. The markets continue to be concerned about the weak UK economy, and this lack of confidence is taking its toll on the pound. In the US, the markets were pleased with Friday’s US Trade Balance data, which looked sharp. There are no UK releases on Monday.

In the US, US Trade Balance looked good. The monthly deficit narrowed to $38.5 billion, well below the market forecast of $45.7 billion. This was the smallest deficit since January 2011. The markets also took note of trade data in China. The Chinese economy continues to grow at a tremendous pace, and in 2012, the Asian giant surpassed the US to become the world’s biggest trading nation, as measured by total exports and imports. US exports and imports totaled $3.83 trillion, and for the first time, China beat that figure, with total trade worth $3.87 billion. This development will surely have profound economic and political implications for both China and its trading partners.

 In January, the euro rallied following positive remarks by ECB head Mario Draghi about the Eurozone economy. Speaking at the ECB’s press conference last week, Draghi once again lit a fire under the currency, only this time in the opposite direction. Draghi warned that the high-flying euro was affecting prices and economic growth in the Eurozone. He stated that the exchange rate was not a policy target, but the ECB would “closely monitor money market developments”. The markets wasted little time in reacting to these comments, and the euro plunged, losing over a cent late last week. Almost lost in the excitement was the fact that the ECB’s key interest rate remained unchanged at 0.75%.

 At a meeting of EU leaders last week, EU leaders hammered out a deal to cut the EU budget. This marks the first time that the bloc’s seven-year budget is being reduced, from the current 994 billion euros to 960 billion. The cuts are modest in scale, but nonetheless an important step in reigning in spending. The deal is a hard-fought compromise, as it reduces the budget while providing more funds for agricultural aid. Although all EU leaders have signed off on the agreement, it must be approved by the European parliament, which is by no means certain. European Parliament head Martin Schulz has already stated that the budget will not pass in its current format. British Prime Minister David Cameron hailed the agreement a “historic victory”, but the pound clearly wasn’t taking part in the celebrations.

GBP/USD for Monday, February 11, 2013

GBP/USD February 11 at 14:55 GMT

1.5686 H: 1.5810 L: 1.5670

GBP/USD Technical

The pound is dropping sharply, and has dipped below the 1.57 line. The support line of 1.5685 is under strong pressure as the pound sags. There is stronger support at 1.5625. On the upside, there is resistance at 1.5728. Given the volatility we are seeing, this line cannot be considered safe. This is followed by stronger resistance 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 and 1.6062.

OANDA Open Positions Ratios

The GBP/USD ratio continues to point to a shift towards long positions. This is not currently reflected in the pair, as the pound is taking a tumble. The activity in the ratio could indicate that there will be a correction to the current downward trend, and that the pound will bounce back against the US dollar. With the continuing volatility in GBP/USD, we can expect movement in the ratio as well.

GBP/USD is showing a lot of volatility, as the pound continues to take it on the chin from the dollar. We could see the strong fluctuations continue as the pound struggles to find its footing.

GBP/USD Fundamentals

• 18:00 US FOMC Member Janet Yellen Speaks

*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.