GBP/USD – Pound Rebounds After Recent Slide

The British pound has started the week on a postive note, as GBP/USD has posted gains in Monday trading. The pair was trading in the 1.5740 range. The week started on a down note, with a disappointing UK Construction PMI. In the US, key indicators were again mixed at the end of last week. Employment numbers were a disappointment, as Non-Farm Payrolls did not meet the estimate and the unemployment rate moved higher. However, consumer sentiment and manufacturing data looked sharp. Monday’s only US release, Factory Orders fell well below expectations.

The British pound has managed, so far, to shrug off today’s weak UK Construction PMI. The key construction index remained unchanged at 48.7 points. The markets had anticipated an improvement, with an estimate of 49.7 points. The index has spent most of its time below the 50 point threshold, indicating ongoing contraction in the UK construction sector. Adding to market concern, the lackluster reading comes on the heels of Friday’s UK Manufacturing PMI, which also failed to meet market expectations. If British data continues to disappoint the markets, we could see the shaky pound take a tumble. In the US, Factory Orders was up nicely, posting a 1.8% gain. However, the markets wanted more, as the manufacturing indicator was well off the 2.3% estimate.

 With US releases pointing in all directions, the markets are having a tough time getting a handle on the extent of the US recovery. Last week produced more mixed data. GDP was a major disappointment, as the economy contracted for the first time since 2009. Employment numbers lost their recent shine, as NFP and Unemployment Claims failed to meet expectations, and the unemployment rate inched up to 7.9%. On the bright side, last week’s consumer sentiment and manufacturing PMI data was very strong. UoM Consumer Sentiment climbed to 73.8 points, well above the estimate of 71.4 points. ISM Manufacturing PMI hit an eight-month high of 53.1 points, easily exceeding the forecast of 50.8 points. With only a handful of key US releases this week, each one will find itself under the market microscope as the markets try to get a handle on where the US economy is headed.

The US Federal Reserve was in the spotlight last week, as the powerful US central bank met for a two-day policy meeting. There were no surprise developments, as the Fed stated it would continue its open-ended QE3 program until the outlook for the labor market “improves substantially”. The Fed noted that economic growth had stalled, but was confident that the pause was a temporary one. This laid to rest speculation that the current round of QE, under which the Fed is purchasing $85 billion a month in securities, might be terminated anytime soon. The Fed maintained its ultra-low benchmark interest rate, saying there would be no change until unemployment drops below 6.5%. With US unemployment hovering close to 8%, we’re unlikely to see this target met anytime soon.

GBP/USD for Monday, February 4, 2013

GBP/USD February 4 at 15:00 GMT

1.5749 H: 1.5751 L: 1.5694

GBP/USD Technical

The pound has edged higher against the US dollar, and is facing resistance at 1.5785. This is followed by a strong line at 1.5850. On the downside, there is weak support at 1.5728. This line could see further activity if the pound retracts from today’s gains. The pair is receiving stronger support at 1.5685.

Current range: 1.5728 to 1.5785.

Further levels in both directions:

• Below: 1.5728, 1.5685, 1.5625, 1.5568, 1.5481 and 1.5395.
• Above: 1.5785, 1.5850, 1.5919, 1.5975, 1.6062 and 1.6135.

OANDA Open Positions Ratios

The GBP/USD ratio is moving towards long postions. This has been reflected in the currency pair in Monday trading, as the pound has posted gains against the US dollar. Long positions command a solid majority in the ratio, indicating that trader sentiment favors the pair continuing to push upwards.

After a sharp drop on Friday, the pound has made some modest upward progress against the dollar. Will the pound continue to push higher? The British currency has managed to shrug off recent weak British PMIs, but it will be hard pressed to make further gains if UK indicators continue to point downward. 

GBP/USD Fundamentals

• 9:30 British Construction PMI. Estimate 48.7 points. Actual 49.7 points.
• 15:00 US Factory Orders. Estimate 2.3%. Actual 1.8%.

*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.