GBP/USD – Pound Steady, British Trade Deficit Shrinks

GBP/USD has edged higher in the Friday session, following three consecutive losing sessions. Currently, the pair is trading just above the 1.26 level. On the release front, the British trade deficit in October dropped to GBP 9.7 billion, well below the forecast of GBP 11.9 billion. This marked the lowest deficit since September 2015. In the US, today’s key event is UoM Consumer Sentiment Index. The markets are expecting the indicator to continue to improve in December, with an estimate of 94.3 points.

British Manufacturing Production was unexpectedly weak in October, posting a decline of 0.9%. This marked the indicator’s largest decline since February. Industrial Production followed suit with a poor reading, dropping 1.3%. Last week, Manufacturing PMI missed the estimate, but the reading of 53.4 still pointed to expansion in the manufacturing sector. On the Brexit front, legal wranglings continue over the mechanism for Britain’s withdrawal from the European Union. The issue is whether parliament or the government has the legal authority to trigger Article 50, the mechanism for starting the negotiation process. The government has appealed a lower court ruling that Article 50 cannot be initiated without parliament’s approval. British Prime Minister Theresa May wants to commence Brexit negotiations in March without having to consult parliament. For its part, the European Union has said that if negotiations do start in March, the EU’s target date to reach an agreement is October 2018.

What Next For Brexit?

The Federal Reserve will once again be on center stage next week as the Fed meets for its monthly policy meeting. This will be the first meeting after Donald Trump’s election as president. More importantly of course, the markets have priced in a rate hike at 95 percent, most likely a quarter-point increase. This would mark the first hike by the Fed since last December, and anticipation of a hike has translated into strong gains for the greenback. It will be interesting to see what happens early next year, with the Trump administration taking over in Washington. Trump has stated that he plans to increase government spending and cut taxes, which could lead to higher inflation levels. The Fed has indicated that it plans to raise rates gradually in 2017, but this could change once the new administration’s economic policies become clearer.

GBP/USD Fundamentals

Friday (December 9)

• 9:30 British Goods Trade Balance. Estimate -11.9B. Actual -9.7B
• 9:30 British Construction Output. Estimate 0.2%. Actual -0.6%
• 9:30 British Consumer Inflation Expectations. Actual 2.8%
• 15:00 US Preliminary UoM Consumer Sentiment. Estimate 94.3
• 15:00 US Final Wholesale Inventories. Estimate -0.4%
• 15:00 US Preliminary UoM Inflation Expectations

*All release times are EST

* Key events are in bold

GBP/USD for Friday, December 9, 2016

GBP/USD December 9 at 10:10 EST

Open: 1.2583 High: 1.2609 Low: 1.2551 Close: 1.2611

GBP/USD Technical

• GBP/USD was flat in the Asian session. The pair has posted slight gains in the European session
• 1.2471 is providing strong support
• 1.2620 remains a weak resistance line

Further levels in both directions:

• Below: 1.2471, 1.2351 and 1.2272
• Above: 1.2620, 1.2778, 1.2849 and 1.2946
• Current range: 1.2471 to 1.2620

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged in the Friday session. Currently, long positions have a majority (58%), indicative of trader bias towards GBP/USD continuing to move upwards.

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.