GBP/USD – Edges Higher as BOE Maintains Course

GBP/USD has edged upwards in Thursday trading, as the pair was trading in the 1.5170 range early in the North American session. There were no surprises from the ECB or Bank of England on Thursday, as the two central banks maintained interest rates. There was major news out of Japan, however, as the BOJ surprised the markets with some aggressive monetary easing, which sent the Japanese yen tumbling. In other economic news, British Services PMI beat the forecast. US numbers continue to look weak, as Unemployment Claims was much higher than expectations.

In the UK, there were no surprises from the BOE, which maintained interest rates at 0.50%. With the deterioration in the UK economy, there has been talk about an increase in QE, and past meetings of the MPC have shown a split in the vote on the QE level. However, the BOE opted to keep things as is, and QE remained pegged at 375 billion pounds. Services PMI looked good, as the key index climbed from 51.8 points to 52.4. This beat the estimate of 51.4 points. The markets were relieved, as the Manufacturing and Services PMIs, released earlier in the week, both missed their estimates.

Unlike with the BOE, the market reaction to Thursday’s BOJ policy meeting was anything but calm. Throughout the week, the yen was firm, as speculation grew that the BOJ would not take any aggressive action at Thursday’s policy meeting, the first under new BOJ Governor Haruhiko Kuroda. The Japanese currency showed some muscle, as USD/JPY dipped below the 93 level. However, the tables were turned on Thursday as the BOJ surprised everyone with aggressive easing steps. The measures include expanding QE to include riskier assets such as ETFs (exchange traded funds) and real estate investment funds. As well, the BOJ will purchase longer-term government bonds, a move aimed at pushing down longer-term interest rates to coax businesses to borrow (and spend) more. The BOJ stated that it plans to boost the monetary base by JPY60-70 trillion each year, reaching JPY270 trillion by the end of 2014. The Japanese yen took a tumble on the news, dropping sharply against the US dollar.

In the US, the continuing weak economic releases are raising concerns about the strength of the US recovery. Last week saw a host of dismal US releases, as manufacturing, housing, consumer confidence and employment figures all fell below expectations. The disappointing numbers have continued into April, as PMIs and the ADP Non-Farm Employment Change were way below the estimates. These weak key releases come from a wide range of sectors, raising concerns about the extent of the US recovery.

The drama and uncertainty in Cyprus, one of the Eurozone’s smallest members, continues, even though a bailout plan has been accepted by all sides. Strict capital controls are still in place in Cyprus in order to prevent a run on the banks. Under the bailout agreement, bank deposits below EUR1000,000 are safe, but larger accounts with the Bank of Cyprus will be facing a haircut of up to 60%. An amount of 37.5% of these deposits will be converted into bank shares, and up to 22.5% more could be grabbed in order to prop up the Bank of Cyprus’ reserves. This steep tax is expected to have a strong negative impact on the country’s business sector, and the government has admitted that the country is in recession. In order to help the ailing economy, the government plans to lift a ban on casinos and provide tax exemptions on business profits that are reinvested on the island. President Nicos Anastasiades has acknowledged that the bailout agreement is a bitter pill for Cypriots, but said that refusing the agreement would have meant the collapse of the banking sector and could have led to Cyprus’ exit from the Eurozone. In a dramatic development, Cyprus finance minister Michael Sarris has resigned. His resignation comes as Cyprus initiates a formal investigation to examine the events which lead to the EUR10 billion bailout.

 GBP/USD for Thursday, April 4, 2013

GBP/USD April 5 at 15:20 GMT

1.5188 H: 1.5196 L: 1.5034

GBP/USD Technical

The pound has edged higher, as the proximate resistance and support lines remain in place (R1 and S1 above). The pair is facing weak resistance at 1.5203. This line could be tested if the pound continues to move upwards. There is stronger resistance at 1.5203. On the downside, 1.5138 is providing support. We find the next support level at 1.5053, a line which is protecting the all-important 1.50 level.

• Current range: 1.5138 to 1.5203

Further levels in both directions:

• Below: 1.5138, 1.5053, 1.4988, 1.4880 and 1.4818
• Above: 1.5203, 1.5309, 1.5392 and 1.5461

OANDA’s Open Positions Ratios

In Thursday trading, we are seeing movement in the GBP/USD ratio towards short positions. This is not reflected in the current movement of the pair, as the pound has posted modest gains against the dollar. However, the activity in the ratio could be an early indication of a correction whereby the US dollar will show improvement.

The BOE interest rate and asset purchase decisions were widely expected, and GBP/USD movement has been moderate on Thursday. The pound posted some gains, aided by a solid reading from British Services PMI. With the US wrapping up the trading week with two key releases, Trading Balance and Unemployment Claims, any readings which are not consistent with the  estimates could impact on the pair.

GBP/USD Fundamentals

• 9:30 British Services PMI. Estimate 51.4 points. Actual 52.4 points
• 11:00 British Assset Purchase Facility. Estimate 375B. Actual 375B
• 11:00 British Official Bank Rate. Estimate 0.50%. Actual 0.50%
• 11:30 US Challenger Job Cuts. Actual 30%.
• 12:30 US Unemployment Claims. Estimate 352K. Actual 385K
• 12:45 US FOMC Member Charles Evan Speaks
• 14:30 US Fed Chairman Bernard Bernanke Speaks
• 14:30 US Natural Gas Storage. Estimate -89B. Actual -94B
• 16:30 US FOMC Member Esther George Speaks
• 21:00 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.