GBP/USD – Edges Up as Markets Eye UK Inflation Figures

The currency markets have started off the trading week with a whimper rather than a bang ,and GBP/USD has not been an exception to this trend. The pound lost over a cent on Friday, as the US dollar was broadly stronger following sharp consumer confidence numbers. In Monday trading the pound has edged higher, and pushed above the 1.52 line. There is only one US release today, as FOMC member Charles Evans speaks in Chicago. There are no events out of the UK, but the markets are keeping a close eye on a host of inflation numbers which will be released early Tuesday, highlighted by CPI, one of the most important economic indicators.

The markets were treated to a host of US releases last week, and for the most part, the results disappointed. US Inflation and manufacturing numbers fell below expectations, and housing numbers were also weak. Unemployment Claims, one of the most important releases and often a market-mover, had looked impressive in recent readings. However, the key indicator couldn’t keep pace last week, as the number of new claims jumped to 360 thousand, much higher than the estimate of 332 thousand. There was some good news from Building Permits, which were up nicely. On Friday, there was some relief from UoM Consumer Sentiment which jumped from 72.3 points to 83.7 points. This was well above the estimate of 77.9 points, and points to a sharp increase in consumer confidence. However, the host of weak US numbers we saw last week will again bring into question the extent of the US recovery, which has not been able to demonstrate sustained growth and continuous positive releases.

The US Federal Reserve has not been in the spotlight recently, but that could change if the Fed modifies its current round of quantitative easing, which involves the purchase of $85 billion in assets each month. The Fed will be tempted to act if it feels that the US recovery has gained more traction, giving it some room to ease up on QE. On Thursday, John Williams, president of the Federal Reserve Bank of San Francisco, stated that the Fed could begin reducing QE this summer and terminate bond buying late in 2013. After every solid US release(which have been heavily outnumbered by weak data), speculation rises that the Fed could take action. As the QE program is dollar negative, any moves by the Fed to wind up QE would be bullish for the dollar at the expense of the euro. So traders can expect any new developments (real or rumor) regarding QE to impact on the currency markets.

Over in Europe, the Eurozone continues to struggle, with many of the major economies suffering from recession. Germany, considered the locomotive of the Eurozone train, is also having a tough time of it, as underscored by last week’s disappointing data.  ZEW Economic Sentiment, one of the most important German releases, came in well below the estimate. German CPI and WPI posted declines, indicating weak activity in the economy. GDP posted a slight gain of 0.1%, but this was below the 0.3% forecast. If the Eurozone is to have any hope of getting back on solid economic footing, it will need Germany to lead the way. Will we see a rebound from German numbers this week?

GBP/USD for Monday, May 20, 2013

GBP/USD May 20 at 14:45 GMT

GBP/USD 1.5216 H: 1.5218 L: 1.5168

GBP/USD Technical

GBP/USD has edged higher on Monday, and is trading slightly above the 1.52 line. The pair faces resistance at 1.5309. This line has strengthened as the pound fell sharply late last week. This is a followed by resistance at 1.5432. On the downside, the pair is testing 1.5203. This line was already breached today, and could see further activity. The next support level is at 1.5111.

• Current range: 1.5203 to 1.5309

Further levels in both directions:

• Below: 1.5203, 1.5111, 1.5047 and 1.5000
• Above: 1.5309, 1.5432, 1.5524, 1.5630 and 1.5695

OANDA’s Open Positions Ratio

With the pound posting sharp losses late last week, the GBP/USD ratio has been pointing to movement towards short positions. The pair has moved slightly higher as we begin the new trading week, and if the upward movement continues, we could see a shift in direction in the ratio. 

The pound had a rough week, shedding close to two cents against the US dollar. We could see some volatility from the pair on Tuesday, as the UK releases a string of inflation data. In the meantime, we can expect GBP/USD to trade quietly in the 1.52 range.

GBP/USD Fundamentals

•  17:00 Federal Reserve Bank of Chicago President Charles Evans Speaks

*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.