GBP/USD – Pound Active as UK, US Services PMIs Dip

The British pound has been showing some volatility in Monday trading, as the pair dropped below the 1.64 line but has since recovered. The pound has run into some turbulence, shedding about 150 points since January 1. In economic news, UK Services PMI dropped to an six-month low and missed the estimate. Over in the US, ISM Non-Manufacturing PMI also posted a six-month low, disappointing the markets. Later today, the Senate holds a vote on the nomination of Janet Yellen for head of the Federal Reserve, which is expected to pass easily.

UK PMIs have been very strong lately, indicative of a strengthening British economy. However, Services PMI dropped to 58.8 points in November, down from 60.0 the month before. This was lower than the estimate of 60.4, and marked the first time that the index has fallen below the 60-point level since June. Last week, Construction PMI posted a slight drop in November. Although the PMI readings remain high, the pound could feel some heat if additional British releases fall short of their estimates. Over in the US, the ISM Non-Manufacturing PMI dropped from 53.9 to 53.0 points, missing the estimate of 54.6 points.

US Unemployment Claims was almost identical to the previous week, coming in at 339 thousand. This was slightly above the estimate of 334 thousand. The markets will be keeping an eye on the year’s first Non-Farm Payrolls, which will be released next week. The NFP could impact on the next Fed decision regarding QE, after 2013 ended with QE tapering. While it was a small move, lowering asset purchases from $85 billion to $75 billion each month, the Fed did make a significant change its monetary policy, and this could have a significant positive impact on the US dollar. If US employment releases continue to look solid, we can expect further tapers in the near future, which could shake up the currency markets in favor of the US dollar.

On Friday, Federal Reserve Chair Bernard Bernanke gave a cautious thumbs-up to the US economy, saying that we could be in for a period of faster growth. Bernanke is winding up his eight years at the helm of the Fed, which included implementing a QE program in order to deal with a severe economic and financial crisis. The Fed has started to taper QE, with a cut of $10 billion to the $85 billion in assets which the Fed has been purchasing each month. The Fed will meet at the end of January, and another taper of $10 billion is a strong possibility. Meanwhile, Bernanke reiterated that the QE taper did not mean that interest rates would be increased.

GBP/USD for Monday, January 6, 2014

GBP/USD January 6 at 16:00 GMT

GBP/USD 1.6414 H: 1.6434 L: 1.6338

GBP/USD Technical

• GBP/USD has shown some movement in Monday trading but has been unable to sustain any momentum. The pair dropped below the 1.64 line in the Asian session but rebounded in the European and North American sessions.
• 1.6329 is providing strong support. This is followed by support at 1.6231.
• On the upside, the pair is testing resistance at 1.6416. This is followed by stronger resistance at 1.6549.
• Current range: 1.6329 to 1.6416

Further levels in both directions:

• Below: 1.6329, 1.6231, 1.6125 and 1.6000
• Above: 1.6416, 1.6549, 1.6705, 1.6964 and 1.7182

OANDA’s Open Positions Ratio

A large majority of the open positions in the GBP/USD ratio are short, indicative of a trader bias towards the dollar moving to higher ground.

The pound has had a busy start to the week, showing some fluctuation in Monday trading. The pair has crossed back above the 1.64 line early in the North American session after losing ground earlier in the day.

GBP/USD Fundamentals

• 9:30 British Services PMI. Estimate 60.4 points. Actual 58.8 points.
• 14:00 US Final Services PMI. Exp. 56.0 points. Actual 55.7 points.
• 15:00 US ISM Non-Manufacturing PMI. Exp. 54.6 points. Actual 53.0 points.
• 15:00 US Factory Orders. Exp. 1.8%. Actual 1.8%.
• 22:30 US Fed Chairman Nomination Vote.

*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.