GBP/USD – Little Movement as British CPI Matches Expectations

GBP/USD has enjoyed a strong September, but the pound’s rally has taken a pause so far this week. The pair posted modest losses on Monday, and has dropped below the 1.59 level in Tuesday trading. The UK released a host of inflation indicators earlier in the day. The all-important CPI matched the forecast, as did most of the other inflation indicators. In the US, Core CPI matched the market forecast, with a small rise of 0.1%. The markets are eagerly awaiting the FOMC Statement, which will be issued on Wednesday.

This week’s highlight is the FOMC Statement, scheduled for release on Wednesday, when the Federal Reserve concludes its two-day policy meeting. The markets have been speculating about QE tapering for months, and we could see the Fed take action in the upcoming statement. However, there is a stronger likelihood that QE tapering will not begin till later in the year, as US economic releases, particularly employment data, could be stronger. Traders should be prepared for some volatility in the currency markets following the FOMC Statement release.

Bernard Bernanke will step down as head of the US Federal Reserve at the end of January, and the race to replace Bernanke has taken a dramatic twist. Former Treasury Secretary Lawrence Summers was considered the leading contender for the prestigious position. Surprisingly, Summers has withdrawn his nomination, leaving Vice Chairman Janet Yellen as the favored candidate. Yellen is considered dovish and may be hesitant when it comes to QE tapering. The dollar responded to the news of Summers’ withdrawal by losing ground against the major currencies.

In the UK, BOE Governor Mark Carney is trying to use forward guidance and is promising anyone who will listen that he will not raise interest rates for another three years. However, many investors seem reluctant to buy what Carney is selling, and believe that the BOE will raise rates by the middle of 2o15. With the UK economy continuing to pick up steam, it’s not hard to see why Carney is having a tough time convincing the business community that rates will not rise until 2o16. If the economy continues to improve, it will be interesting to see if Carney maintains his stance on interest rates.

GBP/USD for Tuesday, September 17, 2013

GBP/USD September 17 at 15:20 GMT

GBP/USD 1.5898 H: 1.5935 L: 1.5885

GBP/USD Technical

• GBP/USD is steady in Tuesday trading. The pair has been testing the 1.59 line throughout the day.
• The pair faces resistance at the round number of 1.6000. This significant line has some breathing room as GBP/USD trades at lower levels. This is followed by resistance at 1.6125. This line has remained intact since January.
• On the downside, the GBP/USD is receiving support at 1.5877. This weak line could be tested if the pound loses ground. This is followed by a strong support level at 1.5756.
• Current range: 1.5877 to 1.6000

Further levels in both directions:

• Below: 1.5877, 1.5756, 1.5645, 1.5527 and 1.5432
• Above: 1.6000, 1.6125, 1.6231 and 1.6300

OANDA’s Open Positions Ratio

The GBP/USD ratio is unchanged in Tuesday trading, continuing the pattern we saw on Monday. This is reflected in the pair’s current movement, which is trading quietly. The ratio is comprised of a majority of short positions, which reflects a strong bias in favor of the US dollar reversing direction and posting gains against the pound.

The pound has been trading very close to the 1.59 line all day, and we could see this slight movement continue in the North American session.

GBP/USD Fundamentals

• 8:30 British CPI. Estimate 2.7%. Actual 2.7%.
• 8:30 British PPI Input. Estimate 0.3%. Actual -0.2%.
• 8:30 British RPI. Estimate 3.2%. Actual 3.3%.
• 8:30 British Core CPI. Estimate 2.1%. Actual 2.0%.
• 8:30 British HPI. Estimate 3.4%. Actual 3.3%.
• 8:30 British PPI Input. Estimate 0.2%. Actual 0.1%.
• 12:15 US Treasury Secretary Jack Lew Speaks.
• 12:30 US Core CPI. Estimate 0.1%. Actual 0.1%.
• 12:30 US CPI. Estimate 0.2%. Actual 0.1%.
• 13:00 US TIC Long-Term Purchases. Estimate -45.3B. Actual 31.1B.
• 14:00 US NAHB  Housing Market Index. Estimate 59 points. Actual 58 points.

*Key releases are highlighted in bold

*All release times are GMT

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