GBP/USD – Edges Lower in Thin Trading

GBP/USD is quiet in Monday trading, as markets in the UK are closed for a holiday. The pair briefly tested the 1.56 line in the Asian session, but later retracted to the low-1.55 range. There are no fundamental releases out of the US on Monday. The lone UK release is BRC Shop Price Index.

Demand for the pound remains strong thanks to some solid UK data last week. British PMIs enjoyed a good week, as all three releases beat their estimates. Manufacturing and Construction PMIs posted solid readings earlier in the week, and Services PMI followed suit on Friday. The indicator climbed from 52.4 to 52.9 points, beating the forecast of 52.5. No less important, it was the fourth consecutive reading above the 50-point level, indicating ongoing expansion in the UK Services sector.

 On Thursday, the ECB pulled the trigger and reduced interest rates to 0.50%, a record low. The rate had been pegged at 0.75% since July 2012. The move was widely expected, as the Eurozone economy remains in poor shape, and many of the major European economies are in recession. However, the euro initially moved higher before dropping sharply. The catalyst for the drop was comments by ECB head Mario Draghi that he was considering a negative deposit rate for banks. The deposit rate, which is what the ECB pays Eurozone banks for overnight deposits, currently stands at 0%. A negative rate could lead to funds flowing out of the Eurozone, and the euro was down more than one cent on Thursday as a result. The euro recovered partially on Friday, and has started the new trading week quietly.

Back in the US, last week’s employment numbers were welcome news, as the US has been churning out mostly weak key releases. Unemployment Claims came in below expectations for the second straight week. The key indicator dropped from 339 thousand to 324 thousand, blowing past the estimate of 346 thousand. On Friday, Non-Farm Payrolls climbed to 165 thousand. This easily beat  the estimate of 146 thousand. As well, the Unemployment Rate fell from 7.6% to 7.5%. Improving employment numbers are critical for economic growth, and the markets are hoping that the good news continues.

GBP/USD for Monday, May 6

GBP/USD May 6 at 14:30 GMT

GBP/USD 1.5523 H: 1.5598 L: 1.5521

GBP/USD Technical

GBP/USD is trading in the low 1.55 range in Monday trading. The pair is currently testing the 1.5524 line. GBP/USD briefly broke through this line earlier in the day, reaching close to the 1.56 line before retracting. There is stronger resistance at 1.5630. On the downside, 1.5432 continues to provide support. This is followed by a support level at 1.5309.

• Current range: 1.5432 to 1.5524

Further levels in both directions:

• Below: 1.5432, 1.5309, 1.5203 and 1.5111
• Above: 1.5524, 1.5630, 1.5695 and 1.5773

OANDA’s Open Positions Ratio

Long positions continue to comprise a solid majority of the open positions. This is indicative of a strong bias towards the pound improving against the US dollar. Earlier, the pound did post gains, but was unable to sustain the momentum and has retracted back to the low-1.55 range.

With only one fundamental release on Monday, we can expect a quiet day from the pair. Market sentiment on the pound improved after solid British PMI releases last week, so there is more room for the pound to post gains against the dollar.

GBP/USD Fundamentals

•  23:01 British BRC Shop Price Index

*Key releases are highlighted in bold

*All release times are GMT

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