GBP/USD – Pound Fights Back After Recent Losses

The British pound was no match for the surging US dollar last week, losing close to 200 points. The pound was hit on Thursday following a dovish statement from the BOE, and lost further ground on Friday after the US released excellent employment data. The pound has reversed direction on Monday, and is trading in the mid-1.49 range in the North American session. It’s a quiet start to the trading week as far as fundamental releases. There are two releases out of the UK later today – BRC Retail Sales Monitor and RICS House Price Balance. In the US, today’s sole release is Consumer Credit.

As widely expected, the BOE did not adjust the asset purchase levels or key interest rate on Thursday. The BOE generally does not release a rate statement when there is no change to the interest rate, but the central bank did issue a statement this time and it sent the pound reeling. The BOE warned that global yields had jumped since the US Federal Reserve announced it planned to reduce QE, and that if yields did rise significantly, this could have a negative impact on UK economic growth. The statement further noted that market expectations in the UK of a rise in domestic rates were unwarranted at this time. There was more bad news for the pound on Friday, as the dollar surged following strong Non-Farm Payrolls. The key indicator hit a four-month high, posting 200 thousand new jobs. This was well above the estimate of 163 thousand. Earlier in the week, US Unemployment Claims came in just below the estimate. The unemployment rate was unchanged at 7.6%. These solid employment numbers out of the US have led to increased speculation that the Federal Reserve may taper QE, which would be a dollar-positive event.

The BOE was also in the news on Wednesday, as the central bank released its quarterly credit conditions survey. The report found that demand for credit by businesses rose in Q2, and is expected to rise further in Q3. The BOE also expects an increase in home loans in Q3, which is good news for the UK housing sector. The optimistic report may signal that companies and potential home owners are becoming more confident about the UK economy.

Eurozone financial ministers are meeting in Brussels on Monday, and will be discussing whether to transfer the next installment of aid to Athens. Eurozone officials have expressed dissatisfaction with the lack of progress by the Greek government in implementing the bailout conditions, including budget cut shortfalls and cuts to the bloated public service. The next tranche of bailout funds amounts to EUR 8.1 billion, but these funds will not be delivered before the troika gives the go-ahead. The Eurogroup could decide to transfer smaller installments rather than the entire 8.1 billion, with each portion conditional on Greece meeting specific milestones in return for more aid.

GBP/USD for Monday, July 8, 2013

GBP/USD July 8 at 15:00 GMT

GBP/USD 1.4937 H: 1.4939 L: 1.4858

GBP/USD Technical

GBP/USD has moved higher on Monday, after sharp losses late last week. The pair is facing resistance at the significant 1.5000 level. Will the pound continue to push higher and put pressure on this line? This is followed by resistance at 1.5111. On the downside, the pair is receiving support at 1.4896. This line has already seen action on Monday, and this could continue if the pair retracts. This pair has held firm since mid-March. The next support level is at 1.4781.

• Current range: 1.4896 to 1.5000

Further levels in both directions:

• Below: 1.4896, 1.4781, 1.4690 and 1.4465
• Above: 1.5000, 1.5111, 1.5203, 1.5309, 1.5432 and 1.5557

OANDA’s Open Positions Ratio

GBP/USD ratio is showing movement towards long positions. This is reflected in the current movement of the pair, as the pound has started off the week with gains against the dollar. The ratio has a large majority of long positions, in contrast to the close split between long and short positions we saw last week.

The pound continues to trade at low levels, but has shown some improvement at the start of the week. There are no major releases from the US or UK on Monday, so there may not be much activity from the pair during the day. However, we could see some volatility early Tuesday, as the UK releases its most important event of the week, Manufacturing Production.

GBP/USD Fundamentals

• 19:00 US Consumer Credit. Estimate 13.2B.
• 23:01 British BRC Retail Sales Monitor. Estimate
• 23:01 British RICS House Price Balance. Estimate 10%.

*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.