GBP/USD: Pound Improves After Carney Remarks

GBP/USD gained ground and pushed above the 1.70 level on Thursday, posting gains after the BOE announced steps to cool the UK housing market. In the US, Unemployment Claims showed little change from the previous reading.

US indicators pointed downwards on Wednesday, led by a dismal Final GDP reading in Q1. The markets were braced for a decline of 1.8%, but the key indicator shocked with a much sharper drop of 2.9%. There was more bad news to follow, as Core Durable Goods Orders declined by 0.1%, its first decline in five months. The estimate stood at 0.3%. Durable Goods Orders looked even worse, coming in at -1.0%, shy of the estimate of -0.1%. Despite the disappointing GDP and durables releases, the US has not sustained strong losses against the pound.

The red-hot UK housing market has been a concern to the markets and UK policymakers for some time, as a sudden drop in house prices could rattle the UK economy. On Thursday, BOE Governor Carney announced measures to ally concerns of a housing bubble, toughening lending criteria and putting a cap on mortgages. Speaking after the publication of the BOE Financial Stability Report, Carney sounded upbeat about the British economy but noted that the housing market remained the number one risk to the country’s financial stability. Carney stated that the BOE had reached its “limit of tolerance” regarding the housing market.

BOE head Mark Carney continues to be in the spotlight in June. Early this month, the pound jumped close to 200 points after Carney stated that interest rates could rise earlier than the markets expected. Carney backtracked at a parliamentary meeting earlier this week, when he said that any rise in rates would be “limited and gradual”.  What does this zigzagging mean for traders? It appears that we could see a rate hike before the end of 2014, rather than sometime in 2015, as the BOE had been insisting until very recently. As a higher rate is bullish for the pound, growing anticipation of a rate hike in the near future could lead to the pound continuing to climb against the retreating US dollar.

GBP/USD for Thursday, June 26, 2014

GBP/USD June 26 at 14:50 GMT

GBP/USD 1.7015 H: 1.7040 L: 1.6971

GBP/USD Technical

• GBP/USD was steady in the Asian session. The pair gained ground in the European session and touched a high of 1.7040. GBP has edged lower in the North American session.
• 1.7000 has switched back to a support role and is a weak line. There is stronger support at 1.6920.
• 1.7183 is providing strong resistance.
• Current range: 1.7000 to 1.7183.

Further levels in both directions:

• Below: 1.7000, 1.6920, 1.6825 and 1.6700
• Above: 1.7183, 1.7228, 1.7383 and 1.7482

OANDA’s Open Positions Ratio

GBP/USD is pointing to gains in short positions on Thursday, reversing the trend which has marked the pair throughout the week. This is not consistent with what we are seeing from the pair, as the pound has posted gains. A significant majority of open positions in the GBP/USD ratio are short, indicative of a trader bias towards the dollar continuing to move higher.

GBP/USD Fundamentals

• 9:30 British BOE Governor Mark Carney Speaks.
• 9:30 BOE Financial Stability Report.
• 12:30 US Unemployment Claims. Estimate 314K. Actual 312K.
• 12:30 US Core PCE Price Index. Estimate 0.2%. Actual 0.2%.
• 12:30 US Personal Spending. Estimate 0.4%. Actual 0.2%.
• 12:30 US Personal Income. Estimate 0.5%. Actual 0.4%.
• 14:30 US Natural Gas Storage. Estimate 101B. Actual 110B.

*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.