GBP/USD – Unchanged As US Posts Dismal Manufacturing Numbers

GBP/USD has started the new trading week very quietly. The pair has picked up where it ended trading last week, and is trading in the high-1.55 range in Monday’s North American session. On Monday, US manufacturing numbers were a major disappointment, as both Core Durable Goods Orders and Durable Goods Orders posted declines. There are no British releases on Monday.

When will the US Federal Reserve scale down QE? That is the million dollar question which continues to preoccupy the markets. The release last week of the FOMC didn’t provide any hints, but appeared to confirm that QE tapering is a question of “when” rather than “if”. The minutes showed that Fed policymakers favor scaling back the bond-buying program, but are divided on the timing of such a move. The policymakers stated that recent US economic data was “mixed”, and all members agreed that it was still too early to scale back the current bond-buying levels of $85 billion each month. QE is a dollar-positive event, so traders should prepare for the US currency to post gains against the major currencies when the Fed decides to taper.

The annual Jackson Hole Summit concluded on the weekend, but anyone expecting some clarity on QE tapering was in for a disappointment. Federal Reserve head Bernard Bernanke was a no-show, and other policymakers didn’t hesitate to share their views. Dennis Lockhart, head of the Atlanta Fed, said that tapering could start in September, but only if US economic numbers justified such a move. There was a more hawkish statement from James Bullard, head of the St. Louis Fed. Bullard said that there was no need for the Fed to rush into QE tapering. The uncertainty over QE tapering has boosted the US dollar, raised the yields on US treasury bonds and had worldwide repercussions, such as causing jittery investors to pull billions of dollars out of emerging markets.

One of the participants at Jackson Hole was BOE Deputy Governor Charlie Bean. He reiterated that the BOE plans to leave its key interest rate of 0.50% until 2016. Bean said the BOE was trying to clearly communicate its intentions and admitted that he was surprised that some market players were skeptical that the BOE would follow through on this message.

Meanwhile, US numbers got off to a rough start this week, as Core Durable Goods Orders declined 0.6%, a four-month low. The markets had expected a gain of 0.6%. Durable Goods Orders looked even worse, plunging 7.3%. This was way off the estimate of -3.0% and the indicator’s poorest performance since September 2012. These weak releases follow Friday’s New Home Sales, which also put in a very poor showing. The dollar has held steady despite these numbers, as the markets have been focusing on when the Fed might taper its QE program. However, if US data continues to look weak, we can expect the dollar to lose ground.

GBP/USD for Monday, August 26, 2013

GBP/USD August 26 at 15:15 GMT

GBP/USD 1.5578 H: 1.5612 L: 1.5557

GBP/USD Technical

GBP/USD is showing little movement on Monday, as the pair trades in the high-1.55 range. GBP/USD did push above the 1.56 line in the European session but was unable to maintain these gains.

GBP/USD continues to face resistance at 1.5645. Next, there is strong resistance at 1.5756.

On the downside, the GBP/USD continues to receive support at 1.5527. This is not a strong line and could be tested if the pound loses ground. This is followed by a strong support level at 1.5432.

• Current range: 1.5527 to 1.5645

Further levels in both directions:

• Below: 1.5527, 1.5432, 1.5309 and 1.5203
• Above: 1.5645, 1.5756, 1.5877, 1.6000 and 1.6071

OANDA’s Open Positions Ratio

The GBP/USD ratio is showing movement towards long positions in Monday trading. This is not reflected in the current movement of the pair, as GBP/USD is trading in a very narrow range. The ratio has a large majority of short positions, which reflects a strong bias in favor of the US dollar posting gains against the pound.

GBP/USD has started the week with a whimper, as the pair trades in a narrow range. Weak US manufacturing numbers earlier on Monday had little impact on the pair, and we could see GBP/USD continue to trade quietly.

GBP/USD Fundamentals

• 12:30 US Core Durable Goods Orders. Exp. 0.6%.  Actual -0.6%.
• 12:30 US Durable Goods Orders. Exp. -3.0%. Actual -7.3%.

*Key releases are highlighted in bold

*All release times are GMT

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