GBP/USD – Steady After Mixed UK Data

The British showed slight improvement after mixed releases out of the UK on Tuesday. Public Sector Net Borrowing numbers showed improvement, but CBI Industrial Order Expectations slipped badly. The pound was trading in the 1.5860 range. In the US, today’s key release is Existing Home Sales.

It was another day of mixed data out of the UK. Public Sector Net Borrowing made a significant improvement, dropping to GBP 13.2 billion from the previous reading of GBP 15.3 billion. There was further good news as the figure beat the forecast of GBP 13.4B. However, the good news was offset by CBI Industrial Order Expectations, which was a major disappointment. The manufacturing indicator dropped sharply, coming in at -20 points. This was well  below the estimate, which stood at -10 points. The poor reading reflects low confidence levels by UK manufacturers. In other economic news, The British 10-year Bond Auction posted an average yield of 1.90%. This was slightly higher than the previous average yield of 1.80%.

The Eurogroup of Eurozone Finance Ministers met in Brussels on Monday, and the agenda was a busy one. The Eurogroup approved the next installment of bailout funds for Greece, in the amount of 9.2 billion euros. This tranche is made up of EUR 7.2 billion in bonds, to recapitalize Greek banks, and EUR 2 billion in cash for government expenses. The decision boosted market sentiment, as the move was seen as a vote of confidence by the ECB in the ability of Greece to carry on with its economic restructuring program. The Eurogroup also started talks on how to best utilize the European Stability Mechanism, the Eurozone’s emergency bailout fund. The Eurogroup is taking a close look at direct bank recapitalization, whereby banks would borrow directly from the ESM. This is intended to replace the process whereby governments simply borrow more funds to bolster their ailing banks. As with most major issues affecting the Eurozone, there are deep divisions on this issue. The front-line members who are being touted for further aid include Spain, Cyprus and Greece.

On the topic of the Eurogroup, Jean-Claude Juncker, who headed the group of finance ministers for the past eight years, stepped down 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 Dijsselbloem 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 Washington, there was a new development in budget negotiations, which have been stalled due to sharp disagreements between the Republicans and Democrats. The Republicans have announced that they will table a proposal in Congress which would extend the debt ceiling until April 15. This would allow the U.S. government to borrow enough money to keep it fully operating for the next three months until the sides can reach an agreement. The two sides took a short breather to celebrate President Obama’s inauguration on Monday. With the parties far apart on the issue of spending cuts and how to deal with the staggering US debt, we can expect more fireworks on Capitol Hill before the spring thaw.

GBP/USD for Tuesday, Jan 22, 2013

GBP/USD Jan 22 at 15:25 GMT

1.5868 H: 1.5880 L: 1.5810

GBP/USD Technical

GBP/USD has managed to stop its recent sharp slide, at least for now. The line of 1.5919 continues to provide resistance. On the downside, 1.5850 is providing weak support. It could once again be tested if the pound loses more ground.here 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 continues to follow’s in Tuesday’s footsteps, with movement toward long postions. This is not reflected in the current movement of the pair, as the pound struggles to stem its recent slide. However, this movement in the ratio, and the fact that most open positions are still long, indicates that trader sentiment favors a reversal of the current downward trend by GBP/USD.

British data was a mix on Tuesday, and the markets will be watching as US Existing Home Sales is released later in the day. GBP/USD could see more activity on Wednesday, as the UK releases key employment data and the minutes from the BOE’s Monetary Policy Commitee.

GBP/USD Fundamentals

• 9:30 UK Public Sector Net Borrowing. Estimate 13.4B. Actual 13.2B.
• 10:34 UK 10-y Bond Auction. Actual 1.90%.
• 11:00 UK CBI Industrial Order Expectations. Estimate -10 points. Actual -20 points.
• 7:45 BOE Governor Mervyn King Speaks.
• 15:00 US Existing Home Sales. Estimate 5.09M.
• 15:00 US Richmond Manufacturing Index. Estimate 4 points.

*Key releases are highlighted in bold

*All release times are GMT

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