GBP/USD – Pound Rally Continues, Tests 1.62

The British pound continues to move higher on Friday, as GBP/USD is testing the 1.62 line in the European session. On Thursday the greenback gained close to 100 points thanks to a strong Unemployment Claims release out of the US. The dollar managed to shrug off some other US indicators which were less than impressive, as PPI posted another decline and the Philly Fed Manufacturing Index plummeted to a six-month low. In the US, there’s a pause in the action with just one data release, JOLTS Job Openings. There are no British releases on Friday.

There was positive news on the US employment front, as Unemployment Claims dropped to 323 thousand, a seven-week low. This was well below the estimate of 333 thousand. The strong figure will likely increase speculation as to when the Fed will step in and taper QE, although such a dramatic move is not considered likely before early 2014. The markets will be keeping a close eye on JOLTS Job Openings, which will be released later on Friday.

Low inflation indicators have been a continuing concern in Japan and the Eurozone, and the US economy is not immune from this problem. The Producer Price Index continues to look weak, posting a decline of 0.2% in October. This was the index’s second straight decline. Earlier this week, Core CPI showed a weak gain of 0.1%, and CPI dipped to -0.1%. These weak numbers point to slow economic activity and weak economic growth in the US. Meanwhile, the Philly Fed Manufacturing Index plunged to just 6.5 points, down from 19.8 a month earlier. It was the key indicator’s worst showing since April.

Over in the UK, we continue to see important economic indicators climb to multi-year highs. CBI Industrial Order Expectations jumped to 11 points in October, bouncing back from a weak reading of -4 points the month before. This was the manufacturing indicator’s best showing since 1995, and is another indication that the British economy continues to pick up steam. Meanwhile, Public Sector Net Borrowing posted a deficit of 6.4 billion pounds in October, an excellent improvement from 9.4 billion a month earlier. However, this was well off the estimate of 4.8 billion.

The US dollar gained ground against the major currencies following the release on Wednesday of the minutes of the Federal Reserve’s most recent policy meeting. Policymakers said the current QE level of $85 billion monthly purchases of bonds could taper “in coming months” if the economy continued to improve. A scaling down of QE is dollar-positive, so we could see the greenback continue to post gains. Earlier in the week, Fed chair Bernard Bernanke said that the employment market improvement was “meaningful” and that interest rates would likely remain low even after QE ends.

Earlier this week, the BOE’s Monetary Policy Committee voted unanimously (9-0) to maintain the current interest rate of 0.50% and QE at 375 billion pounds. These decisions and the voting breakdown were expected and did not attract much attention from the markets. However, the MPC tossed a monkey wrench when it stated that the record-low interest rate might be required even after unemployment rate falls below the 7% level. Previous statements by Governor Mark Carney implied that interest rates could be raised when unemployment dropped below this level, and improving employment numbers have raised speculation that we could see interest rate hikes as early as 2015. The BOE appears to be dampening markets expectations of a rate increase, given the slack in the economy.

GBP/USD for Friday, November 22, 2013

GBP/USD November 22 at 11:15 GMT

GBP/USD 1.6198 H: 1.6216 L: 1.6080

GBP/USD Technical

• GBP/USD has posted slight gains on Friday. The pair continues to test the 1.62 line, and touched a high of 1.6215 earlier in the European session.
• 1.6125 continues to provide support. This line has some breathing room as GBP/USD trades at higher levels. This is followed by support at the key level of 1.6000.
• On the upside, 1.6231 is providing resistance. This level has weakened and could face strong pressure during the day. The next resistance line is the round number of 1.6300. which has held steady since December 2012.
• Current range: 1.6125 to 1.6231.

Further levels in both directions:

• Below: 1.6125, 1.6000, 1.5877, 1.5756 and 1.5645
• Above: 1.6231, 1.6300, 1.6476 and 1.6600

OANDA’s Open Positions Ratio

GBP/USD ratio continues to point to gains in short positions. This is not reflected in the pair’s current movement, as the pound continues to point upwards and move to higher ground. Short positions continue to dominate the open positions, reflecting a trader bias towards the US dollar reversing direction and posting gains.

The pound continues to make inroads against the dollar. With this momentum, we could see the pound push into 1.62 territory before the end of the trading week.

GBP/USD Fundamentals

• 13:40 US FOMC Member Esther George Speaks.
• 15:00 US JOLTS Job Openings. Estimate 3.89M.
• 17:15 US FOMC Member Daniel Tarullo Speaks.

*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.