GBP/USD – Pound Steadies After Sharp Slide

The pound is stable on Thursday, after GBP/USD sustained sharp losses a day earlier. In economic news, US Unemployment Claims climbed to 311 thousand, above expectations. There are no British releases on Thursday. The UK will release Second Estimate GDP on Friday, a key indicator.

In the US, Unemployment Claims came in higher than expected. The indicator climbed to 311 thousand, marking a six-week high. The estimate stood at 307 thousand. Employment indicators are being closely scrutinized by analysts, as the strength of the labor market is one of the most important factors influencing the Federal Reserve regarding the timing of an interest rate hike. A rate increase is expected by mid-2015, but stronger economic data, especially on the employment front, could hasten a move by the Fed. Earlier in the week, JOLTS Job Openings hit its highest level in 13 years, although it too missed expectations.

The pound took a tumble on Wednesday, as the BOE lowered its forecast for wage growth in its inflation report. The central bank said that it expects wages will rise in Q4 by 1.25%, compared to the 2.5% forecast in May. This has caused the markets to scale back expectations of a rate increase anytime soon, and the pound dropped sharply as a result. With the British economy growing and unemployment falling, speculation was rampant that a rate hike was possibly around the corner. However, the Achilles heel in this view has been weak wage growth, which was underscored by a drop of 0.2% in Average Earnings Index in July, the indicator’s first decline in over five years. BOE Governor Mark Carney added salt to the wound at a press conference on Wednesday, when he stated that any interest rate would be “slow and small”. The result was a backlash from the markets as the pound shed over 100 points.

Overshadowed by the BOE Inflation Report were strong showings by Claimant Count Change and the unemployment rate, both key indicators. Claimant Count Change came in at -33.6 thousand, beating the estimate of -29.7 thousand. The unemployment rate fell for a fifth consecutive month, dipping to 6.4%, compared to 6.5% a month earlier. This matched the forecast. British employment numbers continue to look sharp, with unemployment levels falling as the economy picks up steam.

 

GBP/USD for Thursday, August 14, 2014

GBP/USD August 14 at 15:10 GMT

GBP/USD 1.6689 H: 1.6697 L: 1.6658

 

GBP/USD Technical

S3 S2 S1 R1 R2 R3
1.6382 1.6484 1.6565 1.6700 1.6825 1.6920

 

  • GBP/USD edged lower in the Asian session but recovered. The pair has been steady in the European and North American sessions.
  • 1.6565 continues to provide strong support.
  • On the upside, 1.67 is under strong pressure. 1.6825 is stronger.
  • Current range: 1.6565 to 1.6700.

Further levels in both directions:

  • Below: 1.6565, 1.6484, 1.6382 and 1.6251
  • Above: 1.67, 1.6825, 1.6920, 1.7000 and 1.7183

 

OANDA’s Open Positions Ratio

GBP/USD is pointing to strong gains in long positions in Thursday trade. This is consistent with the pound’s sharp losses on Wednesday, which led to the covering of many short positions, which increased the percentage of long positions. The ratio currently has a large majority of long positions, indicative trader bias towards the pound moving to higher ground.

 

GBP/USD Fundamentals

  • 12:30 US Unemployment Claims. Estimate 307K. Actual 311K.
  • 12:30 US Import Prices. Estimate -0.2%. Actual -0.2%.
  • 14:30 US Natural Gas Storage. Estimate 81B. Actual 78B.
  • 17:01 US 30-year Bond Auction.

* 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.