GBP/USD – Pound Steady As US Shutdown Drags On

GBP/USD is steady as we begin the new trading week, with the pair is trading in the mid-1.60 range in Monday’s North American session. The pound has recovered some of the sharp losses it sustained late last week. In economic news, Monday has a very light schedule, with only one minor release out of the US. The UK will release BRC Retail Sales Monitor later in the day. There has been no progress in the US shutdown, which has entered Day 6.

“Stalemate” is the word of the day in Washington, as the shutdown which has paralyzed the US government is now in its sixth day. Democrats and Republicans continue to play the blame game as the government remains paralyzed, without funds to operate. Republicans had demanded that the Democrats delay implementation of the 2010 health care act, known as Obamacare, before agreeing to pass a budget. The Democrats have refused, saying the budget must first be passed before any discussions can be held. There are increasing concerns that a prolonged shutdown will hurt the US economy. If the shutdown does continue, we could see the US dollar lose ground to major currencies such as the British pound.

The media and markets continue to focus on the shutdown, which has paralyzed the US government for close to a week. However, a potentially devastating crisis is creeping up – the debt ceiling. The US has a debt worth $16.7 trillion, and will run out of funds to service the debt by October 17, unless Congress authorizes raising the debt ceiling. Otherwise, the US could potentially default on its obligations, which could cause chaos in the domestic and international markets. Over the weekend, Republican House Speaker John Boehner seems to have hardened his position, saying that the Republicans would not raise the debt ceiling without a “serious conversation” about what is driving the debt to such high levels. This statement (threat?) has irked the Democrats and will do little to soothe jittery markets.

Most experts predicted that the Federal Reserve would taper QE in September, and the markets were caught by surprise when the Fed balked and maintained the levels of the bond-buying program at $85 billion/mth. However, the economic and political landscape has changed dramatically in the past few weeks, with the budget deadlock in Washington, as well as growing fears about a debt ceiling crisis. Even if both of these issues were to be resolved quickly, the distortions and delays in key economic data will make it difficult for the Fed to have an accurate, up-to-date picture of the US economy. This will likely rule out any decision to taper QE before the end of the year.

After a strong run by British PMIs in recent months, last week’s readings all posted declines and missed their estimates. Has the British economy run out of steam? We’ll get a look at some key data on Wednesday, with the release of Manufacturing Production and NIESR GDP. In the meantime, the pound remains at high levels as it continues to trade above the significant 1.60 level.

GBP/USD for Monday, October 7, 2013

GBP/USD October 7 at 14:40 GMT

GBP/USD 1.6066 H: 1.6100 L: 1.6026

GBP/USD Technical

• GBP/USD is stable in Monday trading. The pair touched the 1.61 line early late in the European session but has retracted.
• The pair continues to receive support at the round number of 1.6000. This is followed by a strong support level at 1.5877.
• On the upside, the pair is facing resistance at 1.6125. This is followed by resistance at 1.6231.
• Current range: 1.6000 to 1.6125

Further levels in both directions:

• Below: 1.6000, 1.5877, 1.5756, 1.5645 and 1.5527
• Above: 1.6125, 1.6231, 1.6300, 1.6421, 1.6504 and 1.6573

OANDA’s Open Positions Ratio

The GBP/USD ratio is pointing to movement towards long positions in Monday trading. This is reflected in the pair’s current movement, as the pound has posted gains against the US dollar. The ratio is comprised of a majority of short positions, which reflects a bias in favor of the US dollar moving to higher ground.

The pair is not showing a lot of movement on Monday, and with no major releases out of the UK or the US, the North American session could be uneventful.

GBP/USD Fundamentals

•  23:01 British BRC Retail Sales Monitor
• 23:01 British RICS House Price Balance. Estimate 45%
• 19:00 US Consumer Credit. Estimate 12.6B

*Key releases are highlighted in bold

*All release times are GMT

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