GBP/USD – Pound Drops to 1.68 on Weak UK Trade Data

GBP/USD continues to lose ground on Friday, as the pair trades at the 1.68 line  in the North American session. On the release front, British Trade Balance softened last month and missed expectations. In the US, there were no major releases on Friday.

British Trade Balance weakened in July, as the trade deficit grew for a third straight month, increasing  to -9.4 billion pounds. This is the largest deficit since April, was higher than the estimate of -8.9 billion. Trade Balance is closely linked to currency demand, since foreigners must purchase pounds in order to buy British goods and services.

As expected, there were no monetary moves by the BOE on Thursday, as the central bank left untouched the QE and interest rate levels. QE remains at 375 billion pounds, while the benchmark interest rate stays at 0.50%. On Wednesday, UK Manufacturing Production posted a 0.3% gain. However, the markets had expected more, with an estimate of 0.7%. NIESR GDP Estimate gained just 0.6%, its lowest gain since June 2013. This monthly indicator helps analysts track official GDP, which is released every quarter. Softer readings such as Manufacturing Production and NIESR GDP Estimate have raised concerns that the British economy may be slowing down, and as a result, speculation about a rate hike has faded somewhat.

In the US, Unemployment Claims improved, dipping below the 300 thousand level last week. The key indicator dropped to 289 thousand, beating the estimate of 305 thousand. The four-week claims average, which is less volatile than the weekly count, dipped to 293,500, its lowest level since February 2006. The stronger numbers point to increased hiring in response to stronger demand, which in turn has contributed to gains in income and stronger consumer spending. An improving job market is critical for economic growth, and the dollar has gained broad strength as key US data points upwards.

GBP/USD for Friday, August 8, 2014

GBP/USD August 8 at 14:40 GMT

GBP/USD 1.6805 H: 1.6831 L: 1.6788

GBP/USD Technical

• GBP/USD edged down to the 1.68 line in the Asian session. The pair has shown little movement in the European and North American sessions.
• The round number of 1.67 is providing strong support.
• 1.6825 has reverted to as resistance role as the pound continues to lose ground. This line is under strong pressure. 1.6920 is stronger.
• Current range: 1.6700 to 1.6825.

Further levels in both directions:

• Below: 1.6700, 1.6556, 1.6484 and 1.6426
• Above: 1.6825, 1.6920, 1.7000 and 1.7183

OANDA’s Open Positions Ratio

GBP/USD is pointing to gains in short positions in Friday trade. This is consistent with the movement of the pair, as the pound has posted slight losses. The ratio is split almost evenly between long and short positions, indicative of a lack of trader bias as to what direction to expect from the pair.

GBP/USD Fundamentals

• 8:30 British Trade Balance. Estimate -8.9B. Actual -9.4B.
• 8:30 British Construction Output. Estimate 1.1%. Actual 1.2%.
• 12:30 US Preliminary Nonfarm Productivity. Estimate 1.4%. Actual 2.5%.
• 12:30 US Preliminary Unit Labor Costs. Actual 1.3%. Actual 0.6%.
• 14:00 US Wholesale Inventories. Estimate 0.6%.

* 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.