GBP/USD – Pound Rebounds With Sharp Gains Against Dollar

This week’s GBP/USD rollercoaster continues in full swing, as the pair has reversed direction and posted sharp gains in Wednesday trading. The pound has recovered from Tuesday’s sharp losses, and is trading in the low-1.49 range in the North American session. In economic news, US Wholesale Inventories and Crude Oil Inventories were well off their estimates. All eyes are on the Federal Reserve, which will release the minutes of the most recent FOMC policy meeting, which could shake up the markets. As well, the US 10-year bond auction will be held. Later on, Federal Reserve head Bernard Bernanke will speak at a conference in Cambridge Mass. There are no British releases on Wednesday.

The pound has recovered from sharp losses on Tuesday, when the UK released some weak numbers. Manufacturing Production, this week’s key release, posted a drop of 0.8%, confounding the markets which had anticipated a gain of 0.3%. Industrial Production slipped to a flat 0.0%, missing the estimate of 0.3%. Trade Balance brought no relief, as the deficit swelled from -8.2 billion pounds to -8.5 billion. The silver lining was NIESR GDP Estimate, which provides a monthly look at GDP. The indicator posted a respectable gain of 0.6%, matching the June release. The pound hit a low of 1.4813, the currency’s lowest level against the dollar since June 2010.

Meanwhile, there was some good news for the UK, as the International Monetary Fund revised its forecast of UK growth in 2013. The IMF said that the economy would grow by 0.9% this year, compared with an earlier forecast of 0.6%. This marks the first major upgrade of the UK’s economic outlook in almost three years, and is welcome news for the government, which has implemented austerity measures in an attempt to get its fiscal house in order. The IMF has not been very positive about the UK economy, and an IMF official downplayed the news, calling it a minor revision. As for global growth, the IMF is not optimistic, and is predicting a slowdown in emerging countries such as India and China. A particular sore spot is the Eurozone, which continues to grapple with serious economic and political problems. The IMF says the Eurozone will remain in recession throughout 2013, and downgraded its forecast from -0.4% to -0.6%. For 2014, the IMF trimmed its forecast from 1.0% to 0.9%. 

Now that the US is posting stronger employment numbers and the recovery appears to be strengthening, there is increased speculation that the Federal Reserve will taper QE later this year. Federal Reserve chair Bernard Bernanke has stated that the Fed would act by the end of the year if the economy continues to improve, resulting in a massive sell-off of US bonds, which raised yields and bolstered the US dollar. The markets are eagerly waiting for the release of the FOMC’s last recent policy meeting, which will be released on Wednesday. Traders should be prepared for some volatility in the currency markets after this major release. Bernanke will be addressing an economic conference later on Wednesday, and analysts will be monitoring the speech for any clues as to the Fed’s future monetary policy.

GBP/USD for Wednesday, July 10, 2013

GBP/USD July 10 at 15:10 GMT

GBP/USD 1.4846 H: 1.4946 L: 1.4834

GBP/USD Technical

GBP/USD has posted sharp gains on Wednesday, recovering from Tuesday’s losses. The pair continues to face resistance at 1.4896. This is followed by resistance at the important round number of 1.5000. On the downside, the pair is receiving support at 1.4781. This line has held firm since June 2010, and has strengthened with the pound pushing higher. The next support level is at 1.4690.

• Current range: 1.4781 to 1.4896

Further levels in both directions:

• Below: 1.4781, 1.4690, 1.4465 and 1.4346
• Above: 1.4896, 1.5000, 1.5111, 1.5203, 1.5309 and 1.5432

OANDA’s Open Positions Ratio

GBP/USD ratio has reversed directions, and is pointing towards movement in favor of long positions in Wednesday trading. This is reflected in the current movement of the pair, as the pound has rebounded nicely and has posted strong gains. The ratio has a large majority of long positions, indicating that trader sentiment is strongly biased towards the pound continuing to make inroads against the dollar.

GBP/USD volatility continues this week, as the pound pushes higher on Wednesday after sustaining sharp losses a day earlier. Which way forward for the pair? The first order of business is the FOMC minutes release later on Wednesday. Federal Reserve releases are often market-movers, and we could see some volatility from GBP/USD after this key release.

GBP/USD Fundamentals

• 14:00 US Wholesale Inventories. Estimate 0.3%. Actual -0.5%.
• 14:30 US Crude Inventories. Estimate -2.9M. Actual -9.9M.
• 17:00 US 10-year Bond Auction.
• 18:00 US FOMC Meeting Minutes.
• 20:10 US Federal Reserve Chairman Bernard Bernanke Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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