GBP/USD is showing some movement in both directions in Tuesday trading. The pound started off the day by posting gains against the US dollar, but has since coughed up most of those gains. The pair was trading in the low-1.51 range. There was good news as UK data looked sharp on Tuesday. Services PMI beat market expectations, while BRC Retail Sales Monitor rose sharply. In the US, ISM Non-Manufacturing PMI also looked solid, beating the estimate. However, the consumer Economic Optimism reading fell well below the estimate.
The pound showed some strength early on Tuesday, as Services PMI, a key release, hit a five-month high. The index climbed to 51.8 points, beating the estimate of 51.1. With the exception of a weak reading in January, the index has remained above the 50-point level dating back to 2009. This indicates sustained expansion in the UK Services Industry. The Services PMI was welcome news following the releases of the Manufacturing and Construction PMIs, both of which failed to meet market expectations. This had raised concerns in the market that the UK could be facing a triple-dip recession. The markets will be carefully watching as the BOE announces its Interest Rate and Asset Purchase (QE) levels on Thursday.
The political crisis in Italy shows no sign of abating anytime soon. The leader of the Center-left bloc, Pier Luigi Bersani, urged the leader of the 5-Star Movement, Beppe Grillo, to support a new government or agree to new elections. So far, Grillo has refused to throw his support behind any other party, resulting in a political deadlock that threatens to paralyze the Eurozone’s third largest economy. Grillo, a former comedian, has not minced his disdain for the established political leaders, and called Bersani a “dead man walking”. The stalemate could force new elections in a country weary from a sluggish economy, a staggering debt and a dysfunctional electoral system. Meanwhile, Grillo suggested that Italy hold a referendum on whether to remain in the Eurozone. Italy is facing ac crushing debt of two trillion euros, and Grillo has called for the country to renegotiate terms. Grillo, who led his party to a stunning showing in last week’s election, can now play kingmaker in any coalition talks, and his rhetoric attacking the euro and harsh spending cuts can no longer be dismissed. Many analysts believe that Grillo, who has risen to political prominence thanks to a huge protest vote, would prefer returning to the polls rather than forming a coalition with the established parties.
Back in the US, Janet Yellen, vice-chair of the US Federal Reserve, underscored the Federal Reserve’s intent to continue its current QE program and ultra-low interest rates. Yellen said that she hoped that the low interest rates would facilitate a “return to prudent risk-taking”. The current round of QE involves the purchase of $85 billion in assets each month, and critics have expressed the fear that this could lead to “asset bubbles”. However, both Fed Chair Bernanke and Yellen have argued that the benefits of a stronger recovery outweigh any such risks. Defending the Fed’s asset purchases, Yellen cited a study which found that when the central bank purchases $500 billion in bonds, unemployment drops a quarter of a percentage point within three years. Yellen’s remarks come on the heels of Bernanke’s testimony on Capitol Hill, where he defended the Fed’s monetary policy.
USD/CAD for Tuesday, March 5, 2013
1.5126 H: 1.5199 L: 1.5108
GBP/USD has been fluctuating in Tuesday trading. The pair is facing resistance at 1.5138. This line is a weak one, and has already seen activity today. The line of 1.5204 is a stronger resistance line. On the downside, there is support at 1.5053, which is protecting the all-important 1.50 level.
- Current range: 1.5053 to 1.5138
Further levels in both directions:
- Below: 1.5053, 1.4988, 1.4880 and 1.4818
- Above: 1.5138, 1.5203, 1.5309, 1.5395, 1.5481 and 1.5565
OANDA's Open Position Ratios
The GBP/USD ratio is showing strong movement towards short positions. This is consistent with what we are seeing in the pair, which has been losing ground early in Tuesday's North American session. The ratio remains heavily tilted towards long positions, indicating that trader sentiment is biased towards the pound posting gains against the US dollar.
The UK had some positive data on Tuesday, but the crisis in Italy continues to fester, and nervous investors will be attracted to the safety of the US dollar. The Bank of England will announce the interest rate and QE levels on Thursday, so we could see some volatility later in the week.
- 00:00 BRC Retail Sales Monitor. Actual 2.7%.
- 9:30 British Services PMI. Estimate 51.1 points. Actual 51.8 points.
- 15:00 US ISM Non-Manufacturing PMI. Estimate 55.0 points. Actual 56.0 points.
- 15:00 US IBD/TIPP Economic Optimism. Estimate 47.8 points. Actual 42.2 points.
*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.