GBP/USD – Pound Flirts with 1.32 on Strong Employment Numbers

The British pound has reversed directions on Wednesday, posting strong gains. GBP/USD is currently trading at 1.3160, after almost touching the 1.32 level earlier in the day. On the release front, British employment indicators were solid, led by Claimant Count Change, which easily beat expectations. It’s another quiet day in the US, with only one event on the schedule. Crude Oil Inventories is expected to show another decline, with a forecast of -1.3 million. On Thursday, the UK releases Retail Sales, while the highlight in the US is Unemployment Claims.

The pound has jumped close to 100 points following excellent job numbers on Wednesday. Claimant Count Change gained a negligible 0.4 thousand, beating the forecast of 4.1 thousand. The unemployment rate dipped lower to 4.9%, nudging below the estimate of 5.0%. As well, the Average Earnings Index, which measures wage growth, improved with a gain of 2.3%, matching the estimate.  However, the news was not all positive for the British economy, as a new IMF report has lowered UK growth to 1.7% from 1.9% in the April forecast. The forecast for 2017 is worse, as the April projection of 2.2% has been reduced to just 1.3% on account of Brexit. On Wednesday, the pound dropped after the Moody’s credit agency issued a warning that Britain’s economy could decline if it failed to reach a new trade agreement with Europe. Meanwhile, British inflation indicators met expectations on Wednesday. CPI posted a gain of 0.5%, above the forecast of 0.4%.

Will the ECB make a move at its policy meeting on Thursday? The ECB is under pressure to adopt further monetary easing, but the markets are not expecting a rate cut from the current rate of 0.00%. Still, a dovish rate statement or any hints about further easing from Mario Draghi could push the euro downwards. The situation has become further complicated with the recent Brexit vote, as Britain, the second largest economy in Europe, will be soon be waving goodbye to the EU. This move (and the negotiations preceding it) are bound to have profound economic ramifications on both Britain and the EU, and could result in significant volatility in the currency markets.

GBP/USD Fundamentals

Wednesday (July 20)

• 4:30 British Average Earnings Index. Estimate 2.3%. Actual 2.3%
• 4:30 British Claimant Count Change. Estimate 4.1K. Actual 0.4K
• 4:30 British Unemployment Rate. Estimate 5.0%. Estimate 4.9%
• 10:30 US Crude Oil Inventories. Estimate -1.3M

Upcoming Key Releases

Thursday (July 21)

• 4:30 British Retail Sales. Estimate -0.4%
• 8:30 US Philly Fed Manufacturing Index. Estimate 5.1
• 8:30 US Unemployment Claims. Estimate 271K
• 10:00 US Existing Home Sales. Estimate 5.48M

* Key releases are in bold

*All release times are EDT

GBP/USD for Wednesday, July 20, 2016

GBP/USD July 20 at 14:35 GMT

Open: 1.3104 High: 1.3062 Low: 1.3198 Close: 1.3160

GBP/USD Technical

• GBP/USD was flat in the Asian session and has posted considerable gains in the European session
• 1.3142 was tested in support earlier and is a weak line
• There is resistance at 1.3219

Further levels in both directions:

• Below: 1.3142, 1.3064 and 1.2938
• Above: 1.3219, 1.3349, 1.3513 and 1.3675
• Current range: 1.3142 to 1.3219

OANDA’s Open Positions Ratio

GBP/USD ratio is showing little movement. Long positions have a slight majority (54%), indicative of slight trader bias towards GBP/USD moving to higher levels.

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.