GBP/USD has started the trading week fairly quietly, with limited moves in Monday trading. The pair dipped below the 1.51 level early on Monday, but was trading in the 1.5120 range early in the North American session. In economic news, the US and UK had just one release on Monday, and both were weak. In the UK, Rightmove HPI posted a gain of 1.7%, a sharp drop from the previous reading of 2.8%. In the US, NAHB Housing Market Index dropped to 44 points, missing the estimate of 48 points. Tuesday will see the release of a host of UK inflation numbers, including CPI, which is often a market-mover. Tuesday’s major release out of the US is Building Permits.
Monday has seen a lot of volatility in the currency markets following the announcement of an international bailout for Cyprus. The agreement was reached over the weekend between the European Union, International Monetary Fund and the Cypriot government. The bailout includes an unusual provision of a one-time tax on bank deposits, which is expected to raise 5.8 billion euros, covering more than half of the 10 billion euro bailout. Although Cyprus does not boast a large economy, there was concern that if the country went into bankruptcy, the contagion could affect the entire Eurozone and reignite the debt crisis. In return for the bailout, Cyprus has agreed to trim its deficit, consolidate its banking sector and raise taxes. The markets reacted negatively to the announcement, reflecting a fear that the tax on deposits could lead to bank runs in other Eurozone countries struggling with high debts.
In Italy, the political paralysis continues to worry the markets. Even by Italian standards, the political crisis is bewildering, and the only way out may mean another election. Most Italians oppose going back to the polls, but so far, the political leaders have made little progress in coalition talks. The financial markets are increasingly concerned that the ongoing political impasse will lead to economic instability. Last week, Italy’s three-year borrowing costs rose to their highest level since December. This comes on the heels of a recent credit downgrade to Italy’s debt by the Fitch rating agency. Italy is struggling with a massive debt of 1.9 trillion euros, high unemployment and weak growth. We could see the economy continue to weaken if the politicians don’t get their act together and quickly put together a government to start dealing with the country’s pressing economic troubles.
There is little worry about bank runs in the US, but the health of the economy and pace of recovery continues to weigh on the markets. After excellent US employment and retail sales numbers earlier in the week, Friday’s releases were a big disappointment. The well-respected UoM Consumer Sentiment dropped to 71.8 points, well off the estimate of 78.2 points. The Empire State Manufacturing Index also lost ground, falling to 9.2 points, and missed the estimate of 9.8 points. There was some positive news, as Industrial Production was higher, rising 0.7%. This beat the estimate of 0.4%. The markets will be keeping a close eye on this week’s Federal Reserve policy meeting, which is often a market-mover and could affect the direction of GBP/USD.
GBP/USD for Monday, March 18, 2013
1.5117 H: 1.5144 L: 1.5073
The pound has not shown a great deal of movement, as GBP/USD trades slightly above the 1.51 line. The pair is facing resistance at 1.5138. This is a weak line and could be tested if the pound moves upwards. There is stronger resistance at 1.5203. On the downside, GBP/USD is receiving support at 1.5053. This line is protecting the psychologically important 1.50 level. The next support line is at 1.4988.
- Current range: 1.5053 to 1.5138
Further levels in both directions:
- Below: 1.5053, 1.4988, 1.4880, 1.4818, 1.4766 and 1.4618
- Above: 1.5138, 1.5203, 1.5309, 1.5392 and 1.5461
OANDA’s Open Positions Ratios
The GBP/USD ratio is not showing much movement in Monday trading. This is consistent with what we are seeing from the pair, which has been fairly quiet, continuing the subdued trading that we saw last week. If the ratio begins to show some movement, we could see the pair start to show more activity.
GBP has started the week, quietly, and has not reacted to the Cyprus bailout, unlike the case with the euro and other currencies. We can expect more activity from the pair, as the UK releases a string of inflation figures on Tuesday, including CPI, one of the most important economic indicators.
- 00:01 British Rightmove HPI. Actual 1.7%
- 14:00 US NAHB Housing Market Index. Estimate 48 points. Actual 44 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.