GBP/USD – Pound Subdued, US Retail Sales Rebound

GBP/USD is unchanged in the Friday session, continuing the lack of activity seen on Thursday. Early in the North American session, the pair is trading at 1.2230. On the release front, the markets have plenty of US numbers to digest, as retail sales and inflation readings were strong. Retail Sales rebounded from a decline last month, posting a strong gain of 0.6%. and matching the forecast. Core Retail Sales improved to 0.3%, edging above the estimate of 0.2%. PPI climbed 0.3%, beating the estimate of 0.2%. Later in the day, we’ll get a look at the UoM Consumer Sentiment report. The markets are expecting the indicator to climb to 92.1 points.

Despite gloomy predictions about the effect Brexit would have on the British economy, the country’s third quarter numbers have generally been satisfactory. However, on Friday the BoE released its credit conditions survey, which found less demand in Q3 for mortgages and a fall in demand for credit for house purchasing and for business needs. With Britain poised to leave the EU following the Brexit vote in June, the two sides will have to sit down and haggle over the myriad of details that will come with the historic breakup. A likely sticking point will be the question of the EU budget liabilities and what constitutes Britain’s portion. The EU estimates shared liabilities of over EUR 300 billion and that Britain will have to assume EUR 20 billion. Britain, for its part, is unlikely to simply pay this bill, and a deadlock over this issue could derail a new trade deal between the UK and the continent, ultimately hurting the Eurozone and UK economies.

The US labor market continues to produce strong numbers, as unemployment claims sparkled again last week. The key indicator dropped to 246 thousand, down slightly from 249 thousand a week earlier. The estimate stood at 252 thousand, marking a tenth consecutive week that the indicator has beaten the forecast. Strong job numbers is one of the main arguments of proponents of a rate hike in December, as the labor market, which is close to capacity, continues to fuel steady economic growth.

There were no dramatic comments in the Federal Reserve minutes, but the minutes did underscore the division within the FOMC concerning monetary policy. This was already apparent in the September rate vote, when three members voted against the decision to maintain rates at 0.25 percent. The minutes indicated that some of the members who voted to hold rates chose to fall in line with Janet Yellen, but are in favor of raising rates “relatively soon”. The members in favor of a rate hike believe that ultra-low rates could lead to overly low unemployment levels which could result in inflation rising too quickly. Other policymakers argue that the there is still slack in the labor market, despite the official numbers, and leaving rates on hold could attract more people back into the work force and avoid a spike in inflation. Since there is significant support within the Fed (and the markets) for a rate hike in December, Janet Yellen will be under pressure to press the rate trigger in December. The markets have priced in a December hike at 60 percent and the positive sentiment could help the US dollar continue to move higher. The Fed will next meet in November, but analysts don’t expect a rate move just a week before the presidential election.

GBP/USD Fundamentals

Friday (October 14)

• 8:30 BoE Credit Conditions Survey
• 8:30 British Construction Output. Actual -1.5%. Estimate 0.0%
• 8:30 US Core Retail Sales. Estimate 0.4%. Actual 0.5%
• 8:30 US PPI. Estimate 0.2%. Actual 0.3% 
• 8:30 US Retail Sales. Estimate 0.6%. Actual 0.6%
• 8:30 US Core PPI. Estimate 0.1%. Actual 0.2%
• 8:30 US FOMC Member Eric Rosengren Speaks
• 10:00 US Business Inventories. Estimate 0.1%.
• 10:00 US Preliminary UoM Consumer Sentiment. Estimate 92.1
• 10:00 US Preliminary UoM Inflation Expectations 
• 11:45 External BOE MPC Member Kristin Forbes Speaks
• 13:30 US Federal Chair Janet Yellen Speaks
• Tentative – Federal Budget Balance. Estimate 30.0B

*All release times are EDT

* Key events are in bold

GBP/USD for Friday, October 14, 2016

GBP/USD October 14 at 8.:40 EDT

Open: 1.2225 High: 1.2261 Low: 1.2165 Close: 1.2225

GBP/USD Technical

• GBP/USD has shown limited movement in the Thursday session
• 1.2120 is providing support
• There is resistance at 1.2447

Further levels in both directions:

• Below: 1.2120, 1.1954 and 1.1844
• Above: 1.2447, 1.2525 and 1.2612
• Current range: 1.2120 to 1.2447

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged on Friday, consistent with the lack of movement from GBP/USD. Currently, long positions have a solid majority (60%). This is indicative of trader bias towards GBP/USD breaking out and moving to higher ground.

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.