GBP/ USD – Edges Lower After Strong US Retail Sales Numbers

GBP/USD has been quite busy in Wednesday trading, showing movement in both directions. The pound pushed higher early in the European session, only to cough up those gains following the release of positive retail sales data out of the US. The pound was trading in the low-1.49 range early in North American trading. US indicators continue to look good, highlighted by strong Retail Sales and Core Retail Sales releases. There are no British releases on Wednesday.

The British currency remains under pressure after some disappointing releases on Tuesday. Manufacturing Production declined by 1.5%, surprising the markets which had expected a flat reading of 0.0%. The RICS House Price Balance plunged 6%, way below the estimate of -1%. The NIESR GDP indicator, which tracks British GDP on a monthly basis, declined by 0.1%. The indicator has not been above the zero level since December. There was some good news, as the Trade Deficit narrowed from GBP8.9 billion to GBP8.2 billion. On the whole, the numbers point to a sluggish British economy, with no recovery in sight.

In the US, economic indicators continue to point upwards, fueling expectations that the long-awaited recovery may finally have arrived. Recent US employment numbers were stellar, and this week’s retail sales numbers, the first key releases of the week, did not disappoint. Core Retail Sales jumped 1.0%, easily beating the estimate of 0.5%. Not to be outdone, Retail Sales gained 1.1%, well above the 0.5% forecast. Both indicators hit five-month highs. There was more good news as Import Prices and Business Inventories also posted nice gains. Crude Oil Inventories declined sharply from the February reading, but still managed to beat the estimate. It was an excellent day for the US, and the markets will  be hoping that the positive trend continues when Unemployment Claims are released on Thursday.

Across the Channel, the Eurozone economy also continues to sputter. ECB head Mario Draghi continues to sound optimistic about the Eurozone recovering soon, but the Fitch ratings agency isn’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. With Italy, Spain and France all struggling, and Germany’s economy producing mixed numbers, the markets can be forgiven for not sharing Draghi’s optimism.

GBP/USD for Wednesday, March 13, 2013

1.4925 H: 1.4982  L: 1.4897

GBP/USD Technical

The pound continues to struggle as it tries to stay in 1.49 territory, as the proximate support and resistance levels remain intact (S1 and R1 above). GBP/USD is facing resistance at 1.4988. The pair climbed close to this line earlier, and it could face further activity if the pound can gain any ground. The next line of resistance is at 1.5053. On the downside, 1.4880 is providing weak support. The next level of support is at 1.4818.

• Current range: 1.4880 to 1.4988

Further levels in both directions:

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

OANDA’s Open Positions Ratios

The GBP/USD ratio has continued Tuesday’s trend, and is showing very little movement. The pair has fluctuated in Wednesday trading, as it posted some gains, but then retracted, giving up all of the gains in the process. If the pair can sustain some momentum, look for the ratio to become more active.

More weak UK releases, more solid US numbers. Sound familiar? This has been the story for most of March, as the US recovery appears stronger while the UK economy continues to sputter. If this script continues, we can expect the dollar to post more gains against the shaky British pound.  

GBP/USD Fundamentals

• 12:30 US Core Retail Sales. Exp. 0.5%. Actual 1.0%.
• 12:30 US Retail Sales. Exp. 0.5%. Actual 1.1%.
• 12:30 US Import Prices. Exp. 0.5%. Actual 1.1%.
• 14:00 US Business Inventories. Exp. 0.5%
• 14:30 US Crude Oil Inventories. Exp. 2.3M
• 17:00 US 10-year Bond Auction
• 18:00 US Federal Budget Balance. Exp. -200.0B

*Key releases are highlighted in bold

*All release times are GMT

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