GBP/USD has posted slight losses on Monday, as the pair trades in the mid-1.70 range in the North American session. Market sentiment has weakened as the fighting continues in Gaza and tension ratchet higher in Ukraine. On the release front, Rightmove HPI posted its first decline since November. There are no US releases on Monday.
The markets are keeping a close eye on events in Gaza and Ukraine, two flashpoints which has boosted the safe-haven US dollar at the expense of the pound. Last week’s downing of a Malaysian Airlines jet, apparently by pro-Russian separatists, has seriously frayed relations between the West and Russia, which have already been strained since the latter annexed Crimea. The Europeans are threatening stronger sanctions against Russia in response to the downing of the Malaysian jet. Meanwhile, the fighting in Gaza between Hamas and Israel has intensified. Casualties have been mounting on both sides, as the fighting enters its third week. If the situation deteriorates in either of these hotspots, we could see a negative reaction from the currency markets.
Recent US data has been mixed, but employment numbers continue to shine. On Thursday, Unemployment Claims dropped slightly to 302 thousand, beating the estimate of 310 thousand. This figure marks a seven-week low, as the economy continues to churn out impressive employment data. With Janet Yellen telling Congress that a rate hike could be pushed forward if inflation and employment data exceeds expectations, improving employment data will put more pressure on the Fed to raise rates.
Federal Reserve Chair Janet Yellen concluded two days of testimony on Capitol Hill on Wednesday, testifying before the House Financial Services Committee. Yellen declined to answer questions about when the Fed would begin to raise rates, but she did acknowledge that most economists expect the Fed to make a move in the third quarter of 2015. On Tuesday, the dollar moved higher when Yellen said that the economy still required monetary stimulus, but rates could increase sooner than expected if inflation and job numbers improved more quickly than anticipated. The Fed’s asset purchase program (QE) has flooded the economy with over $2 trillion, keeping interest rates at ultra-low levels, but the Fed has been steadily reducing the program since last December. Currently, the Fed is pumping $45 billion/month into the economy, and the next taper is expected in August, with plans to terminate QE in October.
British employment numbers were excellent last month, but the impressive data was greeted with a yawn by the high-flying pound. Claimant Count Change came in at -36.3 thousand, easily beating the estimate of -27.1 thousand. The unemployment rate dipped to the key level of 6.5%, which had been touted earlier in the year as a threshold level for a rate hike by the BOE. This matched the estimate.
GBP/USD for Monday, July 21, 2014
GBP/USD July 21 at 15:30 GMT
GBP/USD 1.7089 H: 1.7092 L: 1.7078
- GBP/USD edged lower late in the Asian session as this continued late in the European session. The pair is unchanged in the North American session.
- 1.7000 continues to provide support the pair.
- On the upside, 1.7183 is the next resistance level. This is followed by 1.7228, which has held firm since October 2008.
- 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 almost unchanged in Monday trade. This is not consistent with the movement of the pair, as the pound has posted losses to start off the week. A substantial majority of open positions in the GBP/USD ratio are short, indicative of a trader bias towards the dollar continuing to move higher.
• 23:01 British Rightmove HPI. Estimate -0.8%.
* Key releases are highlighted in bold
*All release times are GMT