GBP/USD – British GDP Steady But Pound Loses Ground

The British pound has reversed direction on Thursday and lost ground, wiping out most of the gains from Wednesday. In the North American session, GBP/USD is trading in the mid-1.68 range. On the release front, it’s been a busy day. British GDP matched the forecast, while Business Investment posted its sharpest gain since Q3 of 2012. However the news wasn’t all rosy, as the Public Sector deficit ballooned in April and Industrial Order Expectations fell short of the estimate. In the US, Unemployment Claims disappointed, as the indicator climbed to a three-week high. Existing Home Sales improved in April, but fell short of expectations.

British Second Estimate GDP is often a market-mover, but this time the pound failed to take advantage of another strong reading. The indicator posted a healthy gain of 0.8% in Q1, matching the forecast and keeping in line with the past three readings. The GDP release is another indication that the British economy is recovering at a good clip, so speculation about a rate hike from the BOE will continue to pre-occupy the markets.

US releases had a rough outing on Thursday. Unemployment Claims has looked sharp over the past two releases, but the short streak came to an end. The key employment indicator climbed to 326 thousand, up from 297 thousand a week earlier. This missed the estimate of 312 thousand. With future QE tapers by the Federal Reserve contingent on solid economic data, key employment releases such as Unemployment Claims will continue to be closely scrutinized by the markets. Thursday’s other major release, Existing Housing Sales, improved in April, rising to 4.65 million. However, this was short of the estimate, which stood at 4.71M.

The Federal Reserve minutes were released on Wednesday, and there was no dramatic response from the markets. In the minutes, policymakers discussed an exit strategy from its QE stimulus program, which is set to terminate at the end of 2014. This will likely mean an increase in interest rates, but the minutes didn’t provide a timetable as to when rates might go up, and by how much. Low inflation levels means there is less pressure on the Fed to raise rates next year, but the economic conditions could change in the meantime. The Federal Reserve remains comfortable with its accommodative stance, and will want to see stronger growth and employment numbers before making changes to monetary policy, such as raising rates.

Key British indicators looked solid earlier in the week. Retail Sales, the primary gauge of consumer spending, rebounded in April with a gain of 1.3%, crushing the estimate of 0.4%. On Tuesday, CPI, the primary gauge of consumer spending, put an end to a downward skid which we’ve seen since mid-2013. The index improved to 1.8% in April, edging above the estimate of 1.7%. This figure is close to the BOE’s inflation target of 2.0%.

GBP/USD for Thursday, May 22, 2014

GBP/USD May 22 at 15:00 GMT

GBP/USD 1.6860 H: 1.6916 L: 1.6851

GBP/USD Technical

• GBP/USD has posted losses in Thursday trade. The pair broke below the 1.69 line early in the European session.
• On the upside, 1.6896 is a weak resistance line. The key level of 1.70 is stronger.
• 1.6765 is a strong support line.

Further levels in both directions:

• Below: 1.6765, 1.6705, 1.6549 and 1.6436
• Above: 1.6896, 1.70, 1.7210, 1.7374 and 1.7538

OANDA’s Open Positions Ratio

GBP/USD ratio is pointing to gains in long positions in Thursday trade, reversing the direction seen a day earlier. This is not consistent with the movement of the pair, as the pound has lost ground to the US dollar. A large majority of the open positions in the GBP/USD ratio are short, indicative of a trader bias towards the dollar continuing to post gains.

GBP/USD has reversed directions and lost ground on Thursday. The pair is unchanged in the North American session.

GBP/USD Fundamentals

• 8:30 British Second Estimate GDP. Estimate 0.8%. Actual 0.8%.
• 8:30 British Preliminary Business Investment. Estimate 2.3%. Actual 2.7%.
• 8:30 British Public Sector Net Borrowing. Estimate 3.6B. Actual 9.6B.
• 8:30 British Index of Services. Estimate 0.9%. Actual 0.9%.
• 10:00 British CBI Industrial Order Expectations. Estimate 4 points. Actual 0 points.
• 12:30 US Unemployment Claims. Estimate 312K. Actual 327K.
• 13:45 US Flash Manufacturing PMI. Estimate 55.6 points. Actual 56.2 points.
• 14:00 US Existing Home Sales. Estimate 4.71M. Actual 4.65M.
• 14:00 US CB Leading Index. Estimate 0.4%. Actual 0.4%
• 14:30 US Natural Gas Storage. Estimate 104B. Actual 106B.

*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.