GBP/USD – Pound Loses Ground as US Posts Sharp Employment Numbers

 GBP/USD has dropped lower on Thursday, following solid US releases earlier in the day. The pair briefly dipped below the 1.55 line, and was struggling to remain in 1.55 territory in the North American session. The US rebounded with some solid figures on Thursday, as Trade Balance and Unemployment Claims looked sharp. In the UK, Construction PMI hit a sixth-month high and beat the market estimate. In the Eurozone, the ECB took action on Thursday, and cut interest rates from 0.75% to 0.50%.

It’s been a turbulent week for US releases. Wednesday was a bust, as ADP Non-Farm Payrolls dropped to 119 thousand, well off the estimate of 154 thousand. The ISM Manufacturing PMI came in at 51.7 points. However, Thursday’s releases looked much better. The Trade Deficit narrowed to $38.8 billion, well below the estimate of $42.1 billion. Unemployment Claims fell to 324 thousand, easily beating the estimate of 346 thousand. We’ll get a more complete picture of the US employment situation on Friday, as the US releases Non-Farm Payrolls and the Unemployment Rate. In the UK, Construction PMI improved from 47.2 to 49.4 points, beating the forecast of 48.1. This reading came on the heels of Manufacturing PMI, which also beat the estimate. The markets will be hoping that Services PMI follows suit with a strong release on Friday. 

Anyone who was expecting some dramatic news out of the Fed on Wednesday was sorely disappointed. The FOMC policy statement on Wednesday said little, as the Fed basically noted that it wasn’t willing to take further steps, despite signs of weakness in the US economy. There was no indication that the Fed would make any changes (higher or lower) to its current QE program of purchasing $85 billion in assets each month. The Fed did criticize the government’s economic policy, stating that current fiscal policy was restraining economic growth.

The markets were delighted that Italy has finally put together a government, and Italian releases have looked solid this week. Although the new government will have to deal with an troubled economy, there were some hopeful signs. Italian 10-year bonds fell, dropping below 4%. This is an important sign of renewed investor confidence in the Italian economy. There was more good news as the Italian Monthly Unemployment Rate nudged lower, from 11.6% to 11.5%. This beat the estimate of 11.7%. On Thursday, Italian Manufacturing PMI came in at 45.5 points, beating the estimate of 44.9 points. Strong releases out of the Eurozone’s third largest economy will give a lift to both the Eurozone and the euro.

GBP/USD for Thursday, May 2, 2013

GBP/USD May 2 at 15:30 GMT

1.5503 H: 1.5591 L: 1.5498

GBP/USD Technical

GBP/USD is steady, as it trades in the mid-1.55 range. The pair is testing resistance at 1.5524. We could see this line fall if the pound’s upward momentum continues. There is stronger resistance at 1.5630. On the downside, 1.5432 is providing support. This is followed by a support level at 1.5309.

• Current range: 1.5432 to 1.5524

Further levels in both directions:

• Below: 1.5432, 1.5309, 1.5203 and 1.5111
• Above: 1.5524, 1.5630, 1.5695 and 1.5773

OANDA’s Open Positions Ratio

Long positions continue to comprise a solid majority of the open positions. This is indicative of a strong bias towards the pound improving. However, we are not seeing this movement from the pair at present, as the pound has lost ground against the US dollar.

After some impressive gains against the dollar, the pound has posted losses in Thursday trading. We could see some more movement from the pair, as the markets digest the ECB interest cut earlier today. Friday will see key releases from both countries – employment numbers out of the US and Services PMI from the UK. If these readings are not in line with market expectations, traders should expect to see some volatility from GBP/USD.

GBP/USD Fundamentals

• 8:30 British Construction PMI. Estimate 48.1 points. Actual 49.4 points.
• 11:30 US Challenger Job Cuts. Actual -6.0%
• 12:30 US Trade Balance. Estimate -42.1B. Actual -38-8B.
• 12:30 US Unemployment Claims. Estimate 346K. Actual 324K.
• 12:30 US Preliminary Non-Farm Productivity. Estimate 1.8%. Actual 0.7%.
• 12:30 US Preliminary Unit Labor Costs. Estimate 0.8%. Actual 0.5%.
• 14:30 US Natural Gas Storage. Estimate 27B. Actual 43B.

*Key releases are highlighted in bold

*All release times are GMT

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