GBP/USD – Pound Unchanged, Markets Eye British GDP

The British pound is unchanged at the start of the new trading week. Early in the North American session, GBP/USD is trading slightly above the 1.31 line. On the release front, it’s a quiet start to the week, with just one event on the schedule. British CBI Industrial Order Expectations came in at -4 points, within expectations. There are no US releases on Monday. On Tuesday, the US releases CB Consumer Confidence and New Home Sales, both key indicators.

The pound sustained sharp losses on Friday, as British PMIs, important gauges of economic conditions, were unimpressive. Both indicators fell short of the 50-point threshold, indicating contraction in the services and manufacturing sectors. The soft readings are further indication of of economic fallout from the Brexit vote, in which the British electorate voted to leave the European Union. Consumer indicators have also looked sluggish. Retail Sales posted a decline of 0.9% in June, well off the estimate of -0.4%. As well, GfK Consumer Confidence came in at -9 points in June, the survey’s sharpest decline since 1994. Markit Economics, which publishes the PMI reports, issued a note on Friday, saying that the British economy has undergone “dramatic deterioration” as a result of the Brexit vote. With British economic numbers pointing to a recession, the markets are expecting the BoE to step in and cut rates in August, in order to cushion the Brexit blow. Meanwhile, G-20 finance ministers met in China on the weekend. The group acknowledged that Brexit vote would add uncertainty to global economic conditions, but expressed confidence that this challenge would be met. The G-20 also stated it would refrain from competitive devaluations, an issue that remains a source of contention between Japan and the United States regarding the Japanese yen.

The Federal Reserve will be in the spotlight this week, following decision by the BoE and ECB not to lower interest rates. The Fed meets for a policy meeting on July 27 but is unlikely to announce a rate hike at that time. However, with the US posting some solid numbers in the past few weeks, speculation has risen that the bank could raise rates before the end of the year. Another rate hike will be data-dependent, so if key indicators beat expectations, the likelihood of a rate hike will continue to increase. At the same time, the Fed will be hesitant to make a move if inflation remains stuck at very low levels, well short of the Fed’s target of around 2 percent.

GBP/USD Fundamentals

Monday (July 25)

• 6:00 British CBI Industrial Order Expectations. Estimate -6 points. Actual -4 points

Upcoming Key Events

Tuesday (July 26)

• 10:00 US CB Consumer Confidence. Estimate 95.6
• 10:00 US New Home Sales. Estimate 560K

* Key releases are in bold

*All release times are EDT

GBP/USD for Monday, July 25, 2016

GBP/USD July 25 at 9:30 GMT

Open: 1.3121 High: 1.3164 Low: 1.3093 Close: 1.3113

GBP/USD Technical

• GBP/USD was flat in the Asian session. In European trade, the pair posted gains but then retracted. The pair is unchanged in the North American session
• There is resistance at 1.3142
• 1.3064 is a weak support line

Further levels in both directions:

• Below: 1.3064, 1.2938 and 1.2778
• Above: 1.3142, 1.3219, 1.3349 and 1.3513
• Current range: 1.3064 to 1.3142

OANDA’s Open Positions Ratio

GBP/USD ratio is almost unchanged on Monday, consistent with the lack of movement from GBP/USD. Currently, long positions have a majority (55%), indicative of trader bias towards GBP/USD breaking out and moving higher.

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.