GBP/USD – Rangebound as Markets Eye US Consumer Sentiment

GBP/USD is rangebound in Friday trading, as the pair trades in high-1.59 range in Friday’s European session.  In economic news, today’s highlight is UoM Consumer Sentiment. On Thursday, US jobless claims soared, while the Bank of England made no changes to the interest rate or asset purchase facility levels. In Washington, there is talk of progress over the US shutdown and debt ceiling, as high-level talks continue on Capitol Hill. There are no British releases on Friday.

Could the shutdown soon be over? There appears to be progress towards some agreement on the budget, as high-level talks continue between the Republicans and Democrats in Washington. President Obama held a 90-minute meeting with Republican leaders on Thursday, and the talks continued into the night. The Republicans are likely to make a proposal which would extend the debt ceiling until late November, but would require the Democrats to discuss the budget before that. The White House and Democrats are cool to the idea, but both sides have lowered the rhetoric, as the government shutdown drags on and the debt ceiling hits its limit next week. US Treasury Secretary Jack Lew testified before the Senate finance Committee on Thursday and warned that the political crisis was starting to take a toll on the US economy. With the public blaming both parties for the impasse, the politicians are looking for a way to end the crisis and get the government operating again.

US jobless claims soared last week, hitting a six-month high. The key indicator jumped from 308 to 374 thousand, way above the estimate of 307 thousand. However, this exceptionally high reading could be a one-time aberration, in part due to technical issues in California. In the end, this critical release hasn’t helped the markets gauge the health of the labor market. Non-Farm Payrolls, another vital employment release, is suspended while the shutdown continues, so the US employment picture remains unclear.

In the UK, the Bank of England held course in a pair of key decisions on Thursday. The BOE kept the benchmark interest rate pegged at 0.50%, and left asset purchase facility unchanged at 375 billion pounds. With the British economy picking up steam, the BOE will likely face more pressure to raise rates, although BOE Governor Mark Carney has stated repeatedly that this won’t happen before 2015.

The US dollar was broadly higher earlier in the week, as President Obama nominated Susan Yellen to replace Bernard Bernanke as chairman of the Federal Reserve. Bernanke is due to retire early next year, and Yellen, who serves as Fed vice-chairwoman, became the leading candidate after former Treasury Secretary Lawrence Summers withdrew his candidacy. Yellen is considered dovish in stance and has supported Bernanke in previous rounds of QE increases. Yellen’s nomination must be confirmed by the Senate, but this is expected to be little more than a formality, as she enjoys wide support from both sides of Congress.

QE tapering, one of the hottest topics in the markets just a few weeks ago, has quickly moved to the backburner, courtesy of the budget and debt ceiling crises which have gripped Washington. Earlier this week, the Fed released the minutes of its September policy meeting. At that meeting, the Fed surprised the markets by not reducing its bond-purchasing program, which currently runs at $85 billion/mth. The minutes stated that the decision not to begin tapering was a “close call”. This has raised speculation that we could see tapering before the end of the year. However, the Fed is reluctant to make any major moves in the midst of the political crisis the US is currently experiencing. As well, the Fed is “data dependent”, and key releases such as Non-Farm Payrolls have been suspended to the shutdown. This makes it difficult for the Fed to get an accurate picture of the true state of the economy. Bottom line? We may not see any QE moves by the Fed before the end of the year.

 

GBP/USD October 11 at 12:30 GMT

Forex Rate Graph 21/1/13

GBP/USD 1.5972 H: 1.6002 L: 1.5966

 

GBP/USD Technical

S3

S2

S1

R1

R2

R3

1.5645

1.5756

1.5877

1.6000

1.6125

1.6231

 

  • GBP/USD is showing little movement on Friday. The pair crossed above the 1.60 line early but has since retracted.
  • The pair is facing resistance at the round number of 1.6000. This is a strong line and could be tested again during the day. This is followed by a strong resistance line at 1.6125.
  • On the downside, the pair is receiving support at 1.5877. This is followed by support at 1.5756.
  • Current range: 1.5877 to 1.600

 

Further levels in both directions:

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

 

GBP/USD is trading quietly in the high-1.5o9 range. We could see increased activity from the pair as the US releases key consumer confidence numbers later in the day.

 

GBP/USD Fundamentals

  • 13:55 US Preliminary UoM Consumer Sentiment. Estimate 77.2 points.
  • 13:55 US Preliminary UoM Inflation Expectations.
  • 15:00 US FOMC Member Jerome Powell Speaks.
  • Day 1 – IMF Meetings.
  • Day 2 – G20 Meetings.

 

*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.