GBP /USD – Pound Falters After Weak UK Manufacturing Data

The British pound continues to struggle as the currency lost ground following the release of a disappointing UK Manufacturing Production. GBP/USD touched a low of 1.4832 in Tuesday’s European session, its lowest level since June 2010. The pair has edged higher, but remains under pressure.

Tuesday did not bear good news for the UK, as most releases were well  below market expectations. The highlight of the day was Manufacturing Production. The key indicator had a robust gain in February, but this was not to be repeated as the indicator slumped, declining by 1.5%. The markets had expected a flat reading of 0.0%. RICS House Price Balance declined 6%, way off the estimate of a 1% drop. Industrial Production fell 1.2%, a four-month low. The estimate stood at 0.1.%. There was some good news, as the Trade Deficit narrowed from GBP8.9 billion to GBP8.2 billion. This easily beat the forecast of a GBP8.8 billion deficit. Later on Tuesday, the monthly NIESR GDP Estimate will be released. In the US, the NFIB Small Business Index crossed over the 90-point level for the first time since last November, but still missed the estimate of 91.3 points. The Federal Budget Balance will be released later, and the markets are bracing for a whopping deficit of $200.0 billion.

ECB head Mario Draghi has tried to put a positive spin on the Eurozone economy, but the Fitch ratings agency wasn’t buying. On Friday, Fitch downgraded the debts of Italy and Spain, Belgium, Cyprus, and Slovenia. All are members of the Eurozone, and Fitch warned that urgent action was needed to deal with the debt crisis. These downgrades could result in higher borrowing costs for Italy and Spain. Fitch also placed a negative outlook on all five members, meaning that there is greater than 50 percent chance of another downgrade in the next two years. The downgrade is more bad news for Italy, which is struggling with a political crisis and economic malaise. The Eurozone’s third largest economy crisis is struggling with high unemployment, weak growth and a massive debt of EUR 1.9 trillion.

In the US, last week’s employment numbers were red-hot, and the Unemployment Rate dropped to 7.7%, its lowest level since 2008. The improving economy has led to speculation that the Fed might end the current round of QE, which involves the purchase of $85 billion in assets each month, earlier than expected. In one scenario, the Fed would let the trillions of dollars in securities they have purchased to mature, rather than dump a huge amount of securities on the market. The US economy has been bumpy, and has not responded all that well to the Fed’s massive purchase of assets. This “new exit” strategy could take place later in year, and would be a dramatic shift in the Federal Reserve’s current monetary policy.

GBP/USD for Monday, March 12, 2013

1.4862 H: 1.4916 L: 1.4832

GBP/USD Technical

The pound continues to struggle as it trades  in the 1.4860 range. The pair is facing weak resistance at 1.4880. This is followed by resistance at 1.4988, just below the important 1.50 level. On the downside, 1.4818 is the next line of support. Given the current downward trend of the pound, this line cannot be considered safe. There is stronger support at 1.4766. This line has not been tested since June 2010.

• Current range: 1.4818 to 1.4880

Further levels in both directions:

• Below: 1.4818, 1.4766, 1.4618 and 1.4535
• Above: 1.4880, 1.4988, 1.5053, 1.5138, 1.5203 and 1.5309

OANDA Open Positions Ratios

The GBP/USD ratio was showing movement towards short positions on Monday, but activity in the ratio has now stopped. The currency pair continues to be volatile, and has shown movement in both directions in Tuesday trading. The majority of open positions are long, indicating an expectation that GBP/USD will undergo a correction and move to higher ground.

The pound’s woes continue, as the currency continues to get pummeled by the US dollar. GBP/USD has now dropped over three cents in March. Will the downward trend continue? UK data was mostly disappointing on Tuesday, as the weak British continues to weigh heavily on the pound. We could see some more volatility on Wednesday, as the US releases key retail sales numbers. Meanwhile, we can expect the pound to remain under strong pressure.

GBP/USD Fundamentals

• 00:01 British RICS House Balance. Estimate -1%. Actual -6%.
• 9:30 British Manufacturing Production. Estimate 0.0%. Actual -1.5%
• 9:30 British Trade Balance. Estimate -8.8B. Actual 8.2B
• 9:30 British Industrial Production. Estimate 0.1%. Actual -1.2%
• 11:30 US NFIB Small Business Index. Estimate 91.3 points. Actual 90.8 points.
• 18:00 US Federal Budget Balance. Estimate -200.0B

*Key releases are highlighted in bold

*All release times are GMT

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