GBP/USD – Rally Continues as UK Posts Another Solid PMI

GBP/USD has posted gains on Wednesday, buoyed by a strong UK Services PMI. The pair is testing the 1.54 line in the North American session. Taking a look at today’s key US releases, ADP Non-Farm Employment Change was a major disappointment, as the key indicator fell way below expectations. ISM Non-Manufacturing PMI fared better, coming in slightly ahead of the estimate. GBP/USD has taken advantage of solid British numbers, climbing close to two cents this week.

It was a clean sweep for British PMIs this week, as Services PMI looked sharp on Wednesday. The PMI has been above the 50-point level throughout 2013, marking ongoing expansion in the services sector. The index has been moving upwards, and continued the trend in May, climbing from 52.9 to 54.9 points. This easily beat the estimate of 53.1 points. Earlier in the week, the Manufacturing and Construction PMIs for May showed improvement as both indexes climbed above the 50 line. The solid PMI releases have raised hopes that the underperforming British economy is finally headed in the right direction. 

In the US, another key indicator posted a weak reading, as ADP Non-Farm Employment Change rose to 135 thousand, but was way off the forecast of 171 thousand. This was the third consecutive release to miss expectations, and will likely raise concerns about the extent of the US recovery, given the cloudy employment picture. Today’s other key release, ISM Non-Manufacturing PMI, fared better, coming in at 53.7 points, which beat the estimate of 53.4 points. 

Will the US Federal Reserve scale back its current QE program? This question has been preoccupying the markets for some time now. Although the Fed hasn’t made any changes so far, Fed policymakers, including Fed Chair Bernanke, continue to hint that QE could be scaled back in the next few months. With the US continuing to alternate between good and bad economic releases, the Fed may continue to hold off on any changes to QE before it is convinced that the US economy is improving. The currency markets have reacted sharply to talk about terminating QE, and any moves related to QE will likely impact on the US dollar.

 

GBP/USD for Wednesday, June 5, 2013

Forex Rate Graph 15/1/13

GBP/USD June 5 at 15:20 GMT

GBP/USD 1.5388 H: 1.5402 L: 1.5292

 

GBP/USD Technical

S3 S2 S1 R1 R2 R3
1.5111 1.5203 1.5309 1.5432 1.5557 1.5700

 

GBP/USD continues to rally, and is testing the 1.54 level. The pair is testing resistance at 1.5432. This line could see pressure if the pair’s upward momentum continues. This is followed by stronger resistance at 1.5557. On the downside, GBP/USD is receiving support at 1.5309. This line has strengthened as the pair trades at higher levels. The next support level is at 1.5203, protecting the 1.52 line.

Current range: 1.5309 to 1.5432

 

Further levels in both directions:

  • Below: 1.5309, 1.5203, 1.5111, 1.5047 and 1.5000
  • Above: 1.5432, 1.5577, 1.57 and 1.5802

 

OANDA’s Open Positions Ratio

The GBP/USD ratio has shifted directions, and is pointing to movement towards short positions. We are not seeing this reflected in the current movement of the pair, as the pound has resumed its rally against the dollar. The ratio is close to being evenly divided between long and short positions, indicative of a split in trader sentiment as to what direction the GBP/USD will take.

 

GBP/USD Fundamentals

  • 8:30 British Services PMI. Estimate 52.9. points. Actual 54.9 points.
  • 12:30 US Revised Non-Farm Productivity. Estimate 0.7%. Actual 0.5%
  • 12:30 US Revised Unit Labor Costs. Estimate 0.5%. Actual -4.3%
  • 14:00 US ISM Non-Manufacturing PMI. Estimate 53.4 points. Actual 53.7 points
  • 14:00 US Factory Orders. Estimate 1.6%. Actual 1.0%
  • 14:30 US Crude Oil Inventories. Estimate -0.8M. Actual -6.3M.
  • 18:00 US Beige Book.

 

*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.

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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.