GBP/USD – Pound Keeps on Sliding

The British pound’s slide continues, as GBP/USD trades at two-month lows. The pair was trading in the 1.5860 range. The US markets are closed for Martin Luther King Day. In the UK, the first House Price Index of the month was released, and the index rose to a three-month high.

The British pound picked up where it ended last week, and continued its downward slump. The pound took a tumble on Friday, after disappointing Retail Sale numbers. The trend has continued in Monday trading, and GBP has now shed over 400 points since the beginning of the year. The UK released the Rightmove HPI, and the index showed improvement, posting a reading of 0.2%. This was its first foray into positive territory since October.

The markets are hoping for some news out of Brussels, as the Eurogroup of Eurozone finance ministers is meeting today for the first time in 2013. The main order of business will be a look at direct bank recapitalization, whereby the European Stability Mechanism, which is the Eurozone’s emergency fund, would provide funds directly to banks, rather than to national governments. This is intended to replace the process whereby countries simply borrow more funds to bolster their ailing banks. However, there are deep divisions on the issue within the Eurozone, and Monday’s talks with be preliminary in nature. The frontline members who are being touted for further aid include Spain, Cyprus and Greece.

There are additional developments out the Eurogroup, which will also be replacing its chairman, as Jean-Claude Juncker, who headed the Eurogoup of finance ministers for the past eight years, will be stepping down from this position on Monday. Juncker, a staunch defender of the euro and of European unity, presided over the global financial crisis in 2008, and the more recently, the Eurozone debt crisis, which threatened to destroy the euro. He will be replaced by Jeroen Dijsselbloem, the finance minister of the Netherlands. There was considerable jockeying between France and Germany as to who would be Juncker’s successor, and Dijssselbloem was considered a compromise candidate. The new head will certainly have his work cut out for him in Brussels, as he only became the Dutch finance minister in November.

In the US, key economic releases were mixed, making it difficult to evaluate the extent of the US recovery. Housing and Employment numbers looked excellent, hitting multi-year highs. The good news, however, was tempered by manufacturing and consumer confidence data. The  Philly Fed Manufacturing Index surprised the markets with a very sharp drop, and fell back into negative territory. Coming on the heels of the Empire Manufacturing Index, which also looked dismal, these indicators point to significant contraction in the US manufacturing sector, which is weighing on the fragile economic recovery. Last week wrapped up with Preliminary UoM Consumer Sentiment, which had its worst performance in a year. The indicator dropped to 71.3 points, well below the forecast of 75.1 points. Consumer spending and confidence is a critical component of economic growth, and these numbers will have to improve significantly if the US recovery is to gain traction. Despite the mixed picture, the dollar has had no trouble manhandling the pound in January.

GBP/USD for Monday, Jan 21, 2013

GBP/USD Jan 21 at 15:30 GMT

1.5848 H: 1.5894 L: 1.5841

GBP/USD Technical

The pound continues to slump, and has dropped to mid-1.58 levels. There is resistance at 1.5919. This line has strengthened as the pound continues to lose ground. On the downside, 1.5850 is the next line of support. Given the current downward trend, this line cannot be considered safe. There is stronger support at 1.5785.

• Current range: 1.5850 to 1.5919.

Further levels in both directions:

• Below: 1.5850, 1.5785, 1.5728, 1.5685, 1.5625 and 1.5568.

• Above: 1.5919, 1.5975, 1.6062, 1.6135, 1.6212, 1.6273, 1.6341 and 1.6471.

OANDA Open Positions Ratios

The GBP/USD ratio has finally shown some activity, with a strong shift in favor of long positions. This is not reflected in the current movement of the pair, but could signal that a reversal may not be far away. The majority of postions are now long, indicating an expectation that GBP/USD will undergo a correction and move upwards.

The pound’s woes continues, as it continues to take a tumble against the US dollar. Will the downward trend continue? With little in the way of fundamentals today, we could see the pound lose more ground before it levels off.

GBP/USD Fundamentals

• 13:30 UK Rightmove HPI. Actual 0.2%.

*Key releases are highlighted in bold

*All release times are GMT

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.