GBP/USD – Flat Ahead of British, US CPI

The pound is stable on Monday, as GBP/USD trades quietly in the low-1.67 range. British Rightmove HPI kicked off the week on Sunday, posting a decline of 2.9%, its steepest drop since November 2012. In the US, there was just one release on the calendar, as NAHB Housing Market Index climbed to 55 points, its highest level in 2014. There are no British releases on Monday. On Tuesday, we’ll get a look at British and US CPI data, so traders should be prepared for some volatility from the pair.

The pound continues to point southward, and has posted weekly losses for six straight weeks. The currency dropped sharply on Wednesday, after the BOE Inflation Report lowered the forecast for wage growth in the UK. The central bank said that it expected wages to rise in Q4 by just 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, there was speculation that the BOE might raise rates in 2014. However, weak wage growth, underscored by a decline in Average Earnings Index in July, has dampened the chances of a rate hike in the next several months. BOE Governor Mark Carney dampened expectations further 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.

With the US continuing to suffer from low inflation levels, markets expectations have been low for key inflation indicators. On Friday, PPI, the primary gauge of inflation in the manufacturing sector, slipped to 0.1%, down from 0.4% a month earlier. This matched the estimate. Weak inflation is one reason why the Federal Reserve is in no rush to raise interest rates, as low inflation points to slack in the economy. On the manufacturing front, the Empire State Manufacturing Index plunged to 14.3 points, down from 23.6 points in the previous release. This marked a three-month low and was well off the estimate of 20.3 points.

On Thursday, 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.

 

GBP/USD for Monday, August 18, 2014

GBP/USD August 18 at 14:40 GMT

GBP/USD 1.6724 H: 1.6738 L: 1.6712

 

GBP/USD Technical

S3 S2 S1 R1 R2 R3
1.6484 1.6565 1.6700 1.6825 1.6920 1.7000

 

  • GBP/USD has shown very little movement during the day.
  • 1.6825 is a strong resistance line.
  • 1.6700 has reverted to a support role after gains by the pound on Friday. 1.6565 is stronger.
  • Current range: 1.6700 to 1.6825.

Further levels in both directions:

  • Below: 1.6700, 1.6565, 1.6484 and 1.6382
  • Above: 1.6825, 1.6920, 1.7000 and 1.7183

 

OANDA’s Open Positions Ratio

GBP/USD is pointing to gains in short positions in Monday trade. This is not consistent with the lack of movement we are seeing from the pair. The ratio currently has a large majority of long positions, indicative of trader bias towards the pound breaking out and moving to higher ground.

 

GBP/USD Fundamentals

  • 14:00 US NAHB Housing Market Index. Estimate 53 points.

* 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.