GBP/USD – Steady As US Unemployment Claims Disappoints

The British pound is steady in Thursday trading. In the North American session, the pair is trading in mid- 1.61 range. Taking a look at economic releases, US Unemployment Claims came in higher than expected, disappointing the markets. In the UK, CBI Expectations slumped to -4 points, a three-month low. Later today, BOE Governor Mark Carney will speak at an event in London.

It’s been a week to forget for US employment releases. Unemployment Claims did post a drop last week, falling from 358 thouand to 350 thousand. However, the markets were nonetheless disappointed, having anticipated a result of 343 thousand. This release comes on the heels of a dismal Non-Farm Payrolls report, and does not bode well for the US dollar, which is finding itself under pressure from the major currencies.

On Wednesday, the BOE voted unanimously to maintain its stimulus and monetary policy, as the QE program remained pegged at 375 billion pounds, while the benchmark interest rate was kept at 0.50%. Both decisions were unanimous (9-0). The Bank’s policymakers stated that the UK economic recovery was “robust”, and hence there was no need to increase monetary stimulus or interest rates at the present time. The improving British economy has given a boost to the British pound, which has posted gains of close to 5% in the past six months, outperforming other major currencies.

There was plenty of anticipation leading up to the release of US Non-Farm Payrolls on Tuesday, as the key indicator had been postponed from early October due to the government shutdown. However, the markets were left with a sour taste, as NFP slipped to 148 thousand in September, dropping sharply from 169 thousand in August. This was a six-month low, and well off the estimate of 182 thousand. The US unemployment rate dipped to 7.2%, a five-year low, but this does not point to increased employment, as the participation rate remained at 63.8%, its lowest level since 1978. These figures indicate that the US labor market continues to have difficulty creating new jobs.

There was some optimism and relief last week, as the Republicans and Democrats finally reached an agreement last week to reopen the government and raise the debt ceiling, following weeks of fighting in Congress. However, the deal provides short-term relief only – the government will be funded until January 15, while the debt limit will be raised until February 7. Both sides have agreed to discuss budget issues and try to reach a long-term agreement before December 13. So we could be right back where we started in just a few months. At the same time, the public is angry at lawmakers for creating the crisis, and with congressional elections only a year away, the politicians on Capitol Hill may think twice before plunging the country into another fiscal and political crisis.

The markets had expected the Federal Reserve to taper QE back in September, but the prolonged shutdown and debt crisis will likely mean that the Fed will shy away from any QE moves until early next year. On Monday, Chicago Fed Reserve President Charles Evans reiterated his support for continued monetary stimulus, saying that the Fed would likely need a few more months of US employment data before reducing QE. Currently, the Fed is purchasing $85 billion worth of bonds each month, and any scaling back will have a strong impact on the US dollar. Evans said that he doesn’t expect the Fed to make a move at the December policy meeting, given that the deal reached in Congress to reopen the government and raise the debt ceiling does so only for a few months.

GBP/USD for Thursday, October 24, 2013

GBP/USD October 24 at 15:45 GMT

GBP/USD 1.6162 H: 1.6223 L: 1.6138

GBP/USD Technical

• GBP/USD is steady in Thursday trading, as the pair is showing little movement in the mid-1.61 range.
• GBP/USD continues to face resistance at 1.6231. This is followed by resistance at the round number of 1.6300.
• On the downside, there is weak support at 1.6125. This line could face pressure if the US dollar can break out and post some gains. There is a strong support level at 1.6000.
• Current range: 1.6125 to 1.6231.

Further levels in both directions:

• Below: 1.6125, 1.6000, 1.5877, 1.5756 and 1.5645
• Above: 1.6231, 1.6300, 1.6421 and 1.6512

OANDA’s Open Positions Ratio

GBP/USD continues to point to movement towards long positions in Thursday, continuing a pattern we have seen for most of the week. This is consistent with the movement of the pair, as the pound has posted slight gains against the dollar. Short positions maintain a very significant majority of open positions, reflecting a trader bias towards the US dollar moving to higher levels.

GBP/USD has had a muted reaction to Thursday’s weak Unemployment Claims. With no other major events due out of the US, it could be an uneventful North American session.

GBP/USD Fundamentals

• 10:00 British CBI Industrial Order Expectations. Estimate 10 points. Actual -4 points.
• 12:30 US Trade Balance. Estimate -39.4B. Actual -38.8B.
• 12:30 US Unemployment Claims. Estimate 343K. Actual 350K.
• 13:00 US Flash Manufacturing PMI. Estimate 52.8 points. Actual 51.1 points.
• 14:00 US JOLTS Job Openings. Estimate 3.77M. Actual 3.88M.
• 14:30 US Natural Gas Storage. Estimate 80B. Actual 87B.

*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.