GBP/USD – Pound Weakens, Testing 1.55 Line

GBP/USD continues to edge lower in Tuesday trading. The pound, which touched 1.5598 on Monday, is now struggling to remain above the 1.55 line early in the North American session. The lone UK release is BRC Retail Sales Monitor. In the US, we can expect a quiet day, with just two minor releases on the schedule, as well as a speech from Treasury Secretary Jack Lew.

On Thursday, the ECB pulled the trigger and reduced interest rates to 0.50%, a record low. The rate had been pegged at 0.75% since July 2012. The move was widely expected, as the Eurozone economy remains in poor shape, and many of the major European economies are in recession. However, the euro initially moved higher before dropping sharply. The catalyst for the drop was comments by ECB head Mario Draghi that he was considering a negative deposit rate for banks. The deposit rate, which is what the ECB pays Eurozone banks for overnight deposits, currently stands at 0%. A negative rate could lead to funds flowing out of the Eurozone, and the euro was down more than one cent on Thursday as a result. The euro recovered partially on Friday, and has started the new trading week quietly.

The markets continue to pay close attention to the ECB. After the ECB took action and reduced interest rates, the markets had a chance to hear ECB head Mario Draghi, who spoke in Rome on Monday. Draghi said that last week’s cut was taken due to the continuing slowdown in the Eurozone, and urged Eurozone countries to take the necessary steps to get their fiscal houses in order. Draghi repeated that the ECB was open to further rate cuts, as well as lowering its deposit rates below zero. When he mentioned the latter point last week, the euro took a dive, but this time, the markets did not react. However, not all policymakers favor further rate reductions. Yves Mersch, an ECB board member, stated that interest rate cuts have limits to their effectiveness.

Back in the US, last week’s employment numbers were welcome news, as the US has been churning out mostly weak key releases. Last week’s Unemployment Claims came in below expectations for the second straight week. The key indicator dropped from 339 thousand to 324 thousand, blowing past the estimate of 346 thousand. On Friday, Non-Farm Payrolls climbed to 165 thousand. This easily beat the estimate of 146 thousand. As well, the Unemployment Rate fell from 7.6% to 7.5%. Improving employment numbers are critical for economic growth, and the markets are hoping that the good news continues.

 

GBP/USD for Monday, May 7, 2013

Forex Rate Graph 15/1/13

GBP/USD May 7 at 14:25 GMT

GBP/USD 1.5523 H: 1.5598 L: 1.5521

 

GBP/USD Technical

S3 S2 S1 R1 R2 R3
1.5203 1.5309 1.5432 1.5524 1.5630 1.5695

 

GBP/USD continues to trade close to the 1.55 line in Tuesday trading. The pair is facing resistance at 1.5524. This is a weak line, and could be tested if the pound shows some upward movement. There is stronger resistance at 1.5630. On the downside, 1.5432 continues to provide support. This is followed by a support level at 1.5309.

  • Current range: 1.5432 to 1.5524

 

Further levels in both directions:

  • Below: 1.5432, 1.5309, 1.5203 and 1.5111
  • Above: 1.5524, 1.5630, 1.5695 and 1.5773

 

OANDA’s Open Positions Ratio

Short positions continue to comprise a solid majority of the open positions. This is indicative of a strong bias towards the US dollar improving against the pound. This is reflected in the pair’s current movement, as the pound has posted modest losses against the US dollar.

With no major releases out of the UK or US today, GBP has not showed much movement, and we can expect the pair to trade close to the 1.55 line.

 

GBP/USD Fundamentals

  • 23:01 British BRC Retail Sales Monitor
  • 14:00 US IBD/TIPP Economic Optimism. Estimate 47.1 points
  • 19:00 US Consumer Credit. Estimate 16.2B
  • 20:00 US Treasury Secretary Jack Lew 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.