GBP/USD Dec. 10 – Higher Despite Poor Manufacturing Data

GBP/USD has started the new trading week in good form and has edged higher in today’s European session. The pair GBP/USD shrugged off Friday’s disappointing Manufacturing Production, which was the indicator’s sharpest drop since June 2011. Manufacturing Production dropped 1.3%, a much steeper decline than the estimate of -0.2%. Earlier on Monday, the pound dipped after Italian Prime Minister Mario Monti announced on Friday that he plans to resign. Monti, who has gained the respect of the markets with his skillful handling of Italy’s debt crisis, stated that he could no longer lead the country without the support of former Prime Minister Silvio Berlusconi’s party. The dramatic development means that Italians will head to the polls early next year.

The markets are concerned that the political uncertainty could have an adverse impact on Italy’s weak economy, the third largest in the Euro-zone. Italy is mired in recession, and the loss of Monti’s steady hand at the helm could undermine confidence in the shaky Italian economy.

In the US, employment data continues to point to a slow but steady recovery by the world’s number one economy. Non-Farm Employment Change dropped in November to 146 thousand newly employed persons, but this was well above the forecast of 89K. As well, the US unemployment rate dropped to 7.7%, its lowest level since February 20o9. However, Prelim UoM Consumer Sentiment had a weak release, as the important consumer indicator dropped to 74.5 points, a four-month low. The market estimate stood at 82.4 points. Monday is a quiet day, with no scheduled economic releases in either the UK or in the US.

BOE Governor will address the Economic Club in New York, and analysts and traders will be listening carefully, looking for some clues as to the BOE’s future monetary policy.

GBP/USD for Fri, Dec 7, 2012

GBP/USD for Mon, Dec 10, 2012

GBP/USD Dec 10 at 15:12 GMT
1.6078 H: 1.6079 L: 1.6014

S3 S2 S1 R1 R2 R3
1.5850 1.5930 1.5992 1.6060 1.6150 1.6247

GBP/USD Technical

The end of November was marked by narrow range trading for the pair, but the pound has flexed some muscle since then, and tested the important resistance line at 1.6150. The pair has given up some ground since, and has spent most of the past week in the mid-1.60 range. The pair has made steady upward progress since mid-November, and is moving up as we begin the trading week, having broken above resistance at 1.6060.

•Current range: 1.6060 to 1.6150

Further levels in both directions:

•Below: 16060, 1.5992, 1.5930, 1.5850, 1.5750, 1.5648, 1.56, 1.5530 and 1.5414.
•Above: 1.6150, 1.6247, 1.6343, 1.6475, and 1.66.
•1.6060 is providing weak support as the pair moves higher. 1.5992 is stronger.
•1.6150 is the next line on the upside.

GBP/USD Long – Short Ratio
38.25% 61.75%

Last week, the BOE pulled no surprises, and left unchanged both QE, at 375 billion pounds, and the benchmark interest rate, at a level of 0.75%. This has resulted in a somewhat neutral stance towards GBP/USD, with a slight bias for the pound to weaken against the US dollar. At the same time, there is significant room for upward movement, and the pound has started the new trading week with gains against the dollar.

Today’s Expectations
There are no scheduled US or UK releases today, so the pair will not be impacted by economic releases. The pound has started off Monday with a strong move higher, and is nearing the 1.61 level. The pair could continue to make inroads against the greenback, with no major resistance until 1.6150.

EUR/USD Fundamentals
• 17:15 BOE Governor Mervyn King Speaks at Economic Club in New York.
(All release times are GMT)

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