GBP/USD – Strong Pound Edges Higher After Solid UK Employment Data

The British pound has posted modest gains against the US dollar on Wednesday. GBP/USD has crossed above the 1.56 line and is trading in the mid-1.56 range in the North American session. The pound got some help from another strong British Claimant Count Change release. The UK unemployment rate did not follow suit, and remained unchanged at 7.8%. Average Earnings Index looked solid, posting a four-month high. In the US, there are no major releases, with today’s highlight being the Federal Budget Balance.

The pound continues to look sharp against the US dollar. The currency has had an outstanding June so far, gaining close to five cents against the dollar. British releases bounced back from a poor start to the week, when Manufacturing Production, a key release, declined and failed to meet expectations. There was better news from NIESR GDP Estimate, which posted a respectable gain of 0.6%. On Wednesday, Claimant Count Change improved and beat expectations. The key indicator pointed to a drop of 8.6 thousand claims. This easily surpassed the estimate of 6.8 thousand. The markets, which are always on the lookout for trends, were especially pleased, as this was the third straight reading that Claimant Count Change has beaten the forecast. The unemployment rate, which has been very steady in 2013, was unchanged at 7.8%.

Taking a look at the US, there was some good news from the S&P ratings agency on Monday, as the well-respected firm revised the US sovereign credit rating from negative to stable. This is an important vote of confidence in the US economy, and means that there is less than a 1 in 3 chance of another downgrade in the next two years. S&P noted that a key factor in its revision was the agreement reached in the US Congress which averted the fiscal cliff crisis, which would have led to $600 billion in automatic tax increases and spending cuts and could have pushed the fragile US economy into recession. In 2011, S&P cut the US credit rating from AAA to AA, and the threat of another downgrade has been a concern of the markets. This news will likely improve market sentiment and could give a boost to the US dollar.

The S&P decision is not only bullish for the dollar, but could also affect the US Federal Reserve’s QE program, which involves the purchase of $85 billion in assets each month. The Fed has said that it won’t scale back the program before it sees a stronger economy and an improving employment picture. Although US releases continue to be mixed, speculation is rising that the Fed could take action in the next few months. Since QE is US dollar-negative, any tapering of QE could give a boost to the greenback and jolt the currency markets.

GBP/USD for Wednesday, June 12, 2013

GBP/USD June 12 at 15:00 GMT

GBP/USD 1.5686 High: 1.5688 L: 1.5634

GBP/USD Technical

GBP/USD continues to move upwards and is within striking distance of the 1.57 line, which has provided strong resistance since February. Will the pound cross this important resistance line? The next line of resistance is at the round number of 1.58. On the downside, GBP/USD is receiving support at 1.5557. This line has strengthened thanks to the pound’s rise. This is followed by a strong support level at 1.5432.

Current range: 1.5557 to 1.5700

Further levels in both directions:

• Below: 1.5557, 1.5432, 1.5309, 1.5203 and 1.5111
• Above: 1.5700, 1.580, 1.5869 and 1.5916

OANDA’s Open Positions Ratio

After remaining unchanged this week, GBP/USD ratio is on the move, pointing to an increase in short positions. This is not reflected in the current movement of the pair, as the pound continues to move higher against the dollar. Short open positions have increased their majority, indicating a slight bias towards the pair reversing its current direction and moving downwards.

The pound continues to move higher, and is testing resistance at the 1.57 level. We could see more action from GBP/USD on Thursday, as the US releases several key events, including Unemployment Claims.

GBP/USD Fundamentals

• 8:30 British Claimant Count Change. Estimate -6.8K. Actual -6.8K.
• 8:30 British Average Earnings Index. Estimate 0.3%. Actual 1.3%.
• 8:30 British Unemployment Rate. Estimate 7.8%. Actual 7.8%.
• 14:30 US Crude Oil Inventories. Estimate -1.4M. Actual 2.5M.
• 17:00 US 10-year Bond Auction.
• 18:00 US Federal Budget Balance. Estimate -110.2B.

*Key releases are highlighted in bold

*All release times are GMT

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