GBP/USD – Sharp Losses Continue for Pound

The British pound continues to lose ground against the US dollar, and is currently trading in the 1.5760 range. The catalyst for the downward trend was a negative forecast for the UK economy from the International Monetary Fund. As well British BBA Mortgage Approvals fell below the market estimate. CBI Realized Sales was Thursday’s silver lining, as was higher than expectations. For the second consecutive reading US Unemployment Claims were very sharp.

The pound’s woes show no sign of letting up, as the British currency continues its prolonged slumped. The pound has now shed an astounding four cents in barely two weeks. The markets gave a thumbs down to a report by the IMF, which was pessimistic about the prospects of the UK economy. The IMF predicted that the economy would grow by 1.0% this year, and 1.9% in 2014. Both estimates were lower than its previous forecast in October. The negative report follows one by the World Bank earlier this month, which also downgraded its forecast for British economy. The pessimistic news jolted the markets, and provided more downward momentum to GBP/USD, which has suffered a miserable January. Economic releases were steady out of the UK on Thursday. BBA Mortgages showed no change from the previous release, coming in at 33.4 thousand. This failed to meet the estimate of 34.1 thousand. CBI Realized Sales declined in December, coming in at 17 points. However, the indicator managed to beat the estimate of 14 points.

It has been a tricky task to try and measure the extent of the US economic recovery, especially when US releases point in all directions. Last week’s unemployment claims were outstanding, and retail sales looked sharp. This was offset by weak manufacturing and consumer sentiment data. Both of these sectors continue to weigh on the US economy, making it difficult for the recovery to gain some traction. As well, the most recent housing numbers fell below the estimate. The markets were pleased with Thursday’s US Unemployment Claims which were excellent. The indicator improved slightly, with 335 thousand new claims. This easily beat the market forecast of 359 thousand. There was more good news, as Manufacturing PMI came in at 56.1 points, well above the estimate of 53.2 points.

 

GBP/USD for Thursday, Jan 24, 2013

Forex Rate Graph 24/1/13

GBP/USD January 24 at 16:30 GMT

1.5761 H: 1.5852 L: 1.5759

GBP/USD Technical

S3 S2 S1 R1 R2 R3
1.5625 1.5685 1.5728 1.5785 1.5850 1.5919

 

The pound continues to slump, and has now fallen to the mid-1.57 range. There is resistance at 1.5785. This is a weak line, and could see further acitivity if the pound can recover some ground. 1.5850 is a stronger line of resistance. On the downside, 1.5728 is the next line of support. Given the sharp downward trend, this line cannot be considered safe. There is stronger support at 1.5625.

Current range: 1.5728 to 1.5785.

Further levels in both directions:

  • Below: 1.5728, 1.5685, 1.5625 and 1.5568.
  • Above: 1.5785, 1.5850, 1.5919, 1.5975, 1.6062, 1.6135 and 1.6212.

 

OANDA Open Positions Ratios

Despite the flurry of activity with the pound, the GBP/USD ratio has shown no movement. This could change at any time, so traders should keep a close eye on the ratio for any sign of activity. The majority of postions in the ratio remain long, indicating an expectation that GBP/USD will undergo a correction and move higher.

It’s been all downhill this week for the struggling pound, as the currency is having no luck stemming its freefall against the US dollar. Will the downward trend continue? Today’s excellent US Unemployment Claims release could fuel investor appetite away from the US dollar, so we could see the pound reverse the current downward trend.

 

GBP/USD Fundamentals

  • 9:30 BBA Mortgage Approvals. Estimate 34.1K. Actual 33.6K.
  • 11:00 CBI Realized Sales. Estimate 14 points. Actual 17 points.
  • 13:30 US Unemployment Claims. Estimate 359K. Actual 330K. 
  • 14:00 US Flash Manufacturing PMI. Estimate 53.2 points. Actual 56.1 points.
  • 15:00 US CB Leading Index. Estimate 0.4%.
  • 15:30 US Natural Gas Storage.
  • 16:00 US Crude Oil Inventories. Estimate 2.8M.
  • 18:30 MPC Member Martin Weale Speaks.

 

*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.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.