GBP/USD – Volatile Pound Falls After Strong US Employment Numbers

The British pound is showing some volatility in Thursday trading, and is testing the 1.55 level. After posting some modest gains in the European session, GBP/USD has reversed direction and lost close to one cent early in the North American session. British Manufacturing Production beat the estimate, and the Bank of England made no changes to the interest rate or asset purchase levels. In the US, Unemployment Claims looked sharp, coming in well below expectations.

It’s been a busy day for GBP/USD. The pair moved higher as British Manufacturing Production jumped 1.1%, easily beating the estimate of 0.2%. This was followed by the BOE announcements, which, as expected, maintained change the interest rate and asset purchases levels. The BOE left the benchmark interest rate at 0.50%, electing not to follow the ECB, which cut rates earlier this week. The central bank also kept asset purchases at 375 billion pounds. In the US, today’s highlight was Unemployment Claims. The markets were pleased, as for a third consecutive week, the key indicator came in well below expectations. This time around, Unemployment Claims were almost unchanged, at 323 thousand. This easily beat the estimate of 33 thousand. The US posted a lot of weak numbers in April, so it remains to be seen if an improving employment picture will help the US economy pick up speed. The pair lost ground following the US release, and is struggling to stay above the 1.55 line.

In Europe, ECB head Mario Draghi continues to be in the spotlight following the ECB’s dramatic rate cut. Earlier this week, 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, and that the ECB had other tools to help revive the Eurozone.

Remember all the talk about Greece being on the ropes and possibly leaving the Eurozone? Well, according to the IMF, things have improved. The organization released a report this week which praised Greece for its efforts to reduce crippling deficits, commending the country for ”exceptional progress” in the past four years. The IMF also noted approvingly that Greece had increased competitiveness and kept the financial sector stable. At the same time, the report found that the country has failed to tackle tax evasion or cut the inefficient public sector, and these factors had contributed to a deep recession. With an economy that has shrunk by 20% and an unemployment rate at a staggering 27%, Greece is by no means out of the woods, and may still need a helping hand from the IMF or ECB in the near future.

 

GBP/USD for Thursday, May 9, 2013

Forex Rate Graph 15/1/13

GBP/USD May 9 at 13:50 GMT

GBP/USD 1.5507 H: 1.5588 L: 1.5487

 

GBP/USD Technical

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

 

GBP/USD has showed volatility in Thursday trading, and is struggling to stay above the 1.55 line. The pair faces resistance at 1.5524. This weak line could see more action during the day.  There is stronger resistance at 1.5630. On the downside, the pair is receiving support at 1.5432. This is followed by a support level at 1.5309, which is protecting the 1.53 level.

  • Current range: 1.5432 to 1.5524

 

Further levels in both directions:

  • Below: 1.5432, 1.5309, 1.5203, 1.5111 and 1.5047
  • Above: 1.5524, 1.5630, 1.5695, 1.5773 and 1.5844

 

OANDA’s Open Positions Ratio

GBP/USD ratio continues to show little movement. This is not reflected in the current movement of the pair, as the pound has reversed direction and lost ground against the US. If GBP/USD continues to be active, we are likely to see movement from the ratio as well. Short positions continue to comprise a majority in the ratio, indicative of a bias towards the dollar gaining more ground against the pound.

GBP/USD has shown some volatility, picking up ground after positive UK manufacturing data, only to reverse directions after solid US employment numbers. There are only a handful of releases on Friday, with the highlight being UK Trade Balance. We could see further movement from the pair if the release is not in line with market expectations.

 

GBP/USD Fundamentals

  • 8:30 British Manufacturing Production. Estimate 0.4%. Actual 1.1%.
  • 8:30 British Industrial Production. Estimate 0.3%. Actual 0.7%.
  • 11:00 Bank of England Asset Purchase Facility. Estimate 375B. Actual 375B%.
  • 11:00 Bank of England Official Bank Rate. Estimate 0.50%. Actual 0.50%.
  • 12:30 US Unemployment Claims. Estimate 333K. Actual 323K.
  • 14:00 British NIESR GDP Estimate. Estimate 0.8%.
  • 14:00 US Mortgage Delinquencies. Actual 7.25%.
  • 14:00 US Wholesale Inventories. Estimate 0.3%. Actual 0.4%.
  • 14:30 US Natural Gas Storage. Estimate 80B. Actual 88B.
  • 17:00 US 30-year Bond Auction.

 

*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.