GBP/USD – Slight Losses As Fed Announcement Looms

The British pound is showing some volatility in Wednesday trading. Early in the North American session, GBP/USD is trading in the mid-1.65 range. In economic news, British Nationwide HPI dropped sharply in December, but matched the forecast. BOE Governor Mark Carney spoke at an event in Edinburgh, Scotland. In the US, Wednesday’s highlight is the Federal Reserve Monetary Policy Statement, at which time the Fed will announce whether it will continue to scale down QE.

Will the Fed pull the taper trigger? The markets are waiting for the Fed’s policy statement on Wednesday, with most analysts predicting that the Fed will indeed go ahead and reduce QE for a second straight month. Such a move would mark an important vote of confidence in the US economy, and could give a boost to the US dollar against its major rivals. This policy meeting will be chairman Bernard Bernanke’s last hurrah, as Janet Yellen takes over the reins of the Fed on February 1.

British Preliminary GDP, one of the most important economic indicators was released on Tuesday. The indicator looked solid in Q4 with a 0.7% gain, matching the estimate. The reading points to healthy growth in the economy. Last week, the pound shot up as the unemployment rate which dropped to 7.1%, close to the 7.0% level which the BOE had set as a threshold for raising interest rates. The BOE minutes acknowledged that the 7.0% level would likely be reached earlier than anticipated, but this did not mean that the BOE would immediately respond with a rate hike. Nonetheless, with the UK economy continuing to show improvement, as underscored by the GDP reading, there’s little doubt that the Bank of England finds itself under increased pressure to raise interest rates.

In the US, Core Durable Goods Orders posted another decline, its sixth in seven readings. The key manufacturing release fell 1.6%, well short of the estimate of a 0.7% gain. It was the indicator’s sharpest drop since August 2012. There was no relief from Durable Goods Orders, which plunged lower by 4.3%, nowhere near the estimate of 1.9%. CB Consumer Confidence looked much sharper, climbing to 80.7 points, up from 78.1 a month earlier. The estimate stood at 78.3 points.

The health of the US housing sector continues to concern the markets, as New Home Sales dropped sharply in December to 414 thousand, down from 464 thousand a month earlier. This was nowhere near the estimate of 457 thousand. This follows a disappointing Existing Home Sales release last week. The key indicator dropped to 4.87 million, down from 4.90 million a month earlier and shy of the estimate of the 4.94 million. This was the indicator’s fourth straight drop. The markets will be hoping for better news from Pending Home Sales on Thursday.

GBP/USD for Wednesday, January 29, 2014

GBP/USD January 29 at 16:10 GMT

GBP/USD 1.6560 H: 1.6606 L: 1.6526

GBP/USD Technical

• GBP/USD is showing some volatility in Wednesday trading. The pair touched a low of 1.6526 during the European session.
• On the downside, 1.6549 continues to provide support. This line was breached earlier in the day and remains under pressure. This is followed by stronger support at 1.6416.
• 1.6705 is the next line of resistance. This is followed by resistance at 1.6964, which is protecting the key 1.70 line.
• Current range: 1.6549 to 1.6705

Further levels in both directions:

• Below: 1.6549, 1.6416, 1.6329, 1.6231 and 1.6125
• Above: 1.6705, 1.6964, 1.7182 and 1.7246

OANDA’s Open Positions Ratio

GBP/USD ratio is pointing to gains in long positions in Wednesday trading, continuing the trend we have seen since the start of the week. This is not consistent with the pair’s movement, as the pound has posted modest losses. A large majority of the open positions in the GBP/USD ratio are short, indicative of a trader bias towards the dollar continuing to move to higher ground.

After some sharp moves earlier in the day, GBP/USD has steadied early in the North American session. We could see some activity from the pair following the Federal Reserve announcement latter in the day.

GBP/USD Fundamentals

• 7:00 British Nationwide HPI. Estimate 0.7%. Actual 0.7%.
• 13:15 BOE Governor Mark Carney Speaks.
• 15:30 US Crude Oil Inventories. Estimate 2.2M. Actual 6.4M.
• 19:00 US FOMC Statement.
• 19:00 US Federal Funds Rate. Estimate <0.25%.

*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.