GBP/USD – Pound Rally Ends as FBI Closes Clinton Investigation

GBP/USD has posted sharp losses on Monday, dropping 100 points. In the North American session, the pair is trading slightly above the 1.24 line. On the release front, British Halifax HPI posted a strong gain of 1.4%, well above the forecast of 0.3%. There are no major US events on the schedule. On Tuesday, the UK releases Manufacturing Production, with the indicator expected to improve to 0.5 percent. The US will release JOLT Job Openings and the markets will be focusing on the US presidential election.

The week ended with solid US job numbers. Nonfarm payrolls improved to 161 thousand, although this fell short of the forecast of 171 thousand. Average Hourly Earnings rose 0.4%, edging above the estimate of 0.3%. The unemployment rate remained unchanged at 4.9%. FOMC member Stanley Fischer said on Friday that the labor market’s improvement has been robust and is close to full employment.

The spotlight is on Tuesday’s US presidential election, which will likely dominate the markets throughout the week. Although polls continue to point to a tight race, Clinton appears to have the upper hand, as she has an easier path to garnering the 270 electoral votes needed to claim victory. The most recent polls indicate that voters favor Clinton over Donald Trump by a margin of three to five percent. The Clinton campaign received a boost as the FBI announced that it had no reason to change its conclusion that Clinton was not guilty of criminal wrongdoing in her use of private emails while she was secretary of state. The US dollar posted gains following the FBI announcement, and the greenback could continue to move higher if Clinton wins the election. There are different market scenarios depending on the actual outcome of the election, with the worst case scenario being a too-close-to-call result. If either candidate fails to deliver a decisive victory, the leadership vacuum and uncertainty surrounding the result could trigger higher volatility in the markets. If the election does spark market volatility, the Federal Reserve could hold off from raising interest rates at its next policy meeting in December.

On Thursday, the pound recorded its strongest daily session since July, as GDP/USD has jumped 160 points. The pound responded positively to the BoE’s decision to maintain rates at 0.25 percent. The move amounts to a strong vote of confidence in the UK economy, which has weathered the Brexit vote quite well, as third quarter numbers have generally been solid. The BoE lowered rates in August and had indicated that it would make another cut in November, perhaps down to 0.10% in order to boost the economy. However, strong UK numbers and a steady improvement in inflation levels have allowed the BoE to remain on the sidelines. The Bank has essentially admitted that it was far too pessimistic about the fallout from Brexit, as the MPC has revised its forecast of economic growth. In August, shortly after the Brexit vote, the MPC forecast growth of 2.0 percent in 2016 and 0.8 percent in 2017. The new forecast says the economy will grow 2.2 percent this year and 1.4 percent in 2017.

There was dramatic news on the Brexit front on Thursday, as the High Court ruled that the government cannot invoke Article 50, the mechanism for leaving the EU, without parliamentary approval. This has raised hopes of a “soft Brexit”, whereby the exit from Europe will be less economically disruptive as the government will have to ensure that the Brexit move receives a majority from members of parliament, a majority of whom wanted Britain to remain in the EU. The government, which has indicated that it wants to invoke begin negotiations with the EU by March 2017, intends to appeal the ruling to the Supreme Court. Still, the ruling is undoubtedly a setback for the government. BoE Governor Mark Carney said that the court decision underscores that there will be “uncertainty and volatility” over the Brexit negotiations.

 

GBP/USD Fundamentals

Monday (November 7)

  • 3:30 British Halifax HPI. Estimate 0.3%. Actual 1.4%
  • 10:00 US Labor Market Conditions Index. Actual 0.7
  • 15:00 US Consumer Credit. Estimate 17.6B
  • Tentative – US Loan Officer Survey
  • 19:01 British Retail Sales Monitor

Upcoming Key Events

Tuesday (November 8)

  • 4:30 British Manufacturing Production. Estimate 0.5%
  • 10:00 US JOLTS Jobs Openings. Estimate 5.67M
  • All Day – US Presidential Election

*All release times are EDT

* Key events are in bold

 

GBP/USD for Monday, November 7, 2016

GBP/USD November 7 at 11:15 EDT

Open: 1.2485 High: 1.2497 Low: 1.2378 Close: 1.2411

 

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.2120 1.2272 1.2351 1.2479 1.2620 1.2778
  • GBP/USD posted small losses in the Asian session and continues to lose ground in the European and North American sessions
  • 1.2351 has weakened in support as the pair has posted sharp losses
  • 1.2479 is a strong resistance line

Further levels in both directions:

  • Below: 1.2351, 1.2272 and 1.2120
  • Above: 1.2479, 1.2620 and 1.2778
  • Current range: 1.2351 to 1.2479

OANDA’s Open Positions Ratio

GBP/USD ratio has shown gains in short positions. Currently, long positions command a majority (59%), indicative of trader bias towards GBP/USD reversing directions and moving to higher ground.

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.