GBP/USD – Pound Posts Gains, Breaks Above 1.61

GBP/USD continues to chip away at the US dollar. In Tuesday’s North American session, the pair is trading in the low-1.61 range. The British currency has gained close to one cent since Friday, making up most of the losses sustained late last week. In economic news, the BRC Retail Sales Monitor disappointed, dipping to a five-month low. There are no major US releases on Tuesday. The US shutdown has now reached Day 8, amid little indication that the crisis will end anytime soon.

With the British economy showing signs of improvement, housing prices are going up, and this was underscored by the RICS House Price Balance, which jumped by 54%, its strongest gain in over 10 years. The indicator has been increasing by leaps in recent readings, after posting a long streak of declines. The news was not as positive from the BRC Retail Sales Monitor, which posted a gain of 0.7%, its weakest rise since April. Manufacturing Production, a key release, will be released on Wednesday.

The US government shutdown enters its second week on Tuesday, and there is no progress to report out of Washington. 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 some instability in the markets this week, and the US dollar, which is already under strong pressure, could lose ground.

As political squabbling has held up the US budget, a far more serious crisis is lying just around the corner – 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 markets. A US default has not been priced in the markets, and such a cataclysmic event has never happened. With just 10 days until the ceiling is reached, we could see the markets get restless if the politicians in Washington don’t get their act together quickly.

Most analysts 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 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. Meanwhile, distortions and delays in key economic data will make it difficult for investors to gauge what the Fed is planning. On Friday, Non-Farm Payrolls and the Unemployment Rate were cancelled, and further data will have to be postponed as the shutdown continues. The FOMC minutes will be released on Wednesday, and this event is often a market-mover, so we could be in for some volatility in the currency markets.

GBP/USD for Tuesday, October 8, 2013

GBP/USD October 8 at 14:20 GMT

GBP/USD 1.6107 H: 1.6124 L: 1.6098

GBP/USD Technical

• GBP/USD has posted modest gains on Tuesday. The pair pushed above the 1.61 level in the European session.
• 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 a weak line that could be tested during the day. 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 has reversed direction, pointing to movement towards short positions in Tuesday trading. This is not 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 continues to point upwards, as the dollar remains under pressure. With no major releases out of the US  during on Tuesday, we could see the pair continue to trade close to the 1.61 line during the North American session.

GBP/USD Fundamentals

• 23:01 British BRC Shop Price Index.
• 11:30 US NFIB Small Business Index. Estimate 95.2 points. Actual 93.9 points.
• 14:00 US IBD/TIPP Economic Optimism. Estimate 46.2 points.

*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.