GBP/USD – Pound Drops Sharply Ahead of Carney Testimony

GBP/USD has posted sharp losses on Tuesday, as the pair trades at 1.2120 in the North American session. On the release front, BoE Mark Carney will testify before the House of Lords Economic Affairs Committee in London. Over in the US, today’s highlight is the CB Consumer Confidence, with the indicator expected to drop to 101.5 points. On Wednesday, the US releases New Home Sales.

The market remain jittery about Brexit, although British numbers in the third quarter have generally been solid. On Tuesday, the spotlight will be on BoE Governor Mark Carney who testifies before the House of Lord Economics Affair Committee. Carney will discuss the economic consequences of the Brexit vote. Prior to the Brexit vote in June, Carney warned about the economic fallout if the UK voted to leave the European Union. Further warnings from Carney that the British economy is headed for turbulent times or that there are signs that the economy is hurting could push the pound lower during his testimony. On the other hand, if Carney acknowledges that the BoE’s dire predictions were misplaced, the struggling pound could recover some ground. The markets will also be looking for clues regarding upcoming rate moves. The bank has hinted that it will be lowering rates at its next policy meeting in November, although solid British numbers and higher inflation means that policymakers may be thinking twice before moving ahead with further rate cuts.

With the US labor market close to capacity, jobless claims surprised the markets by climbing to 260 thousand, higher than expected. This marked the first reading since August that the key indicator has not beaten the estimate. Still, the dollar didn’t lose any ground, as the 4-week daily average of jobless claims remains excellent. There was good news from the manufacturing front, as the Philly Fed Manufacturing Index posted a strong gain of 9.7 points, easily beating the forecast of 5.2 points. On the inflation front, US consumer inflation numbers were a mixed bag. CPI edged up to 0.3%, up from 0.2% a month earlier. This was the strongest gain since April. Core CPI went the opposite direction, slipping to 0.1%, down from 0.3% a month earlier. These numbers could have an important bearing on the Fed’s interest rate decision in December. Currently, a December rate hike is currently priced in at 68 percent, as market sentiment remains high that the Fed will press the rate trigger before the end of the year.

GBP/USD Fundamentals

Tuesday (October 25)

• 9:00 US HPI. Estimate 0.5%
• 10:00 US S&P/CS Composite-20 HPI. Estimate 5.1%
• 10:00 US CB Consumer Confidence. Estimate 101.5
• 10:00 IBF/TIPP Economic Optimism. Estimate 47.6
• 10:00 US Richmond Manufacturing Index. Estimate -5 points
• 10:35 BoE Governor Mark Carney Speaks 

Wednesday (October 26)

• 10:00 US New Home Sales. Estimate 601K

*All release times are EDT

* Key events are in bold

GBP/USD for Tuesday, October 25, 2016

GBP/USD October 25 at 8:40 EDT

Open: 1.2223 High: 1.2243 Low: 1.2112 Close: 1.2125

GBP/USD Technical

• GBP/USD showed little movement in the Asian and European sessions, but has posted sharp losses in the North American session
• 1.2120 is under pressure in support and could break in the North American session
• There is resistance at 1.2447

Further levels in both directions:

• Below: 1.2120, 1.1954 and 1.1844
• Above: 1.2447, 1.2525 and 1.2612
• Current range: 1.2120 to 1.2447

OANDA’s Open Positions Ratio

GBP/USD ratio is showing long positions with a strong majority (62%). This is indicative of trader bias towards GBP/USD reversing directions 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.