GBP/USD has leveled off after crossing above the 1.62 line yesterday (Dec. 17). The pair has not shown any ill effect after the S&P credit ratings agency had lowered its rating on the UK from stable to negative. In its announcement, S&P warned that there is a one-in-three chance that Britain will lose its triple-A credit rating in the next two years. British CPI, a key release, continues to look strong, posting a robust gain of 2.7%. This was the same figure as the previous reading and within market expectations. This is the highest level seen since May, and is bullish for the pound, as higher inflation signals more spending and economic activity.
In the US, there are no key releases this week until Wednesday. The dollar was broadly weaker after the Federal Reserve announced that it would implement another round of quantitative easing (QE4), and purchase an additional $45 billion per month in Treasury holdings in order to boost the US economy. The Fed is stepping in order to bolster the US economic recovery, which has been moving at a frustratingly slow pace. Market focus has now shifted to the looming fiscal cliff crisis. This refers to a combination of tax hikes and spending cuts if Congress does not take action before the end of 2012.
The Republicans have softened their position, and it appears that any agreement will include tax hikes on the nation’s wealthiest earners. However, the sides are still far apart on cuts to federal spending, with the Democrats strongly opposed to cuts to major programs such as Medicare. Negotiations between the Democrats and the Republicans are in full gear, and lawmakers on Capitol Hill would love to hammer out a deal before the Christmas holidays next week. Looking at the fundamentals, there are only two releases on Monday, both out of the US. With the market activity winding down toward the holidays, GBP/USD may have an uneventful day.
GBP/USD for Tue, Dec 18, 2012
GBP/USD Dec 18 at 12:50 GMT
1.6206 H: 1.626 L: 1.6204
GBP/USD is testing resistance at 1.6212, after briefly breaking through this level earlier in the European session. If this line falls, the pair could continue upwards, with the next line of resistance at the round number of 1.63. On the downside, 1.6135 is providing the pair with strong support.
• Current range: 1.6135 to 1.6212
Further levels in both directions:
• Below: 1.6135, 1.6020, 1.5975, 1.5940, 1.5825 and 1.5775.
• Above: 1.6212, 1.6341, 1.6475 and 1.66.
OANDA Open Positions Ratios
The pound has been pushing hard against the dollar throughout December, and trader sentiment is strongly biased to GBP/USD retracting to lower levels. A potential downturn following last week’s gains has not materialized, although the pair has leveled off as it trades just above the 1.62 line.
The pound took full advantage of the Q4 announcement by the Fed monetary easing and shrugged off the S&P downgrade to UK government debt. A key inflation release did not bolster the pound for very long, as GBP/USD has leveled off. Look for the pair to continue to trade close the 1.62 line.
• 00:01 BOE Quarterly Bulletin
• 9:30 UK CPI. Estimate 2.6%. Actual +2.7%.
• 9:30 UK PPI Input. Estimate +0.1%. Actual +0.1%.
• 9:30 UK RPI. Estimate +3.2%. Actual +3.0%.
• 9:30 UK Core CPI. Estimate +2.7%. Actual +2.6%.
• 9:30 UK HPI. Estimate +1.6%. Actual +1.5%.
• 9:30 UK PPI Output. Estimate +0.2%. Actual -0.2%.
• 13:30 US Current Account. Estimate -105B.
• 15:00 US NAHB Housing Market Index. Estimate 47 points.
*Key releases are highlighted in bold
*All release times are GMT