GBP/USD – Pound Posts Gains as Volatility Continues

The British pound has posted sharp gains against the US dollar on Wednesday. GBP/USD has gained about one cent, and was trading at 1.5128 early in the North American session. In economic news, it’s a very quiet day, as the today’s only fundamental data is UK CBI Realized Sales, which dropped to its lowest level since January 2o12.  

We are seeing a lot of volatility on the currency markets on Tuesday, and GBP/USD is no exception. The pair lost around one cent on Monday, but has rebounded sharply and recovered these losses. However, the pound remains under pressure and has been no match for the surging US dollar, losing about four cents in the month of May. The British economy continues to stumble, and on Tuesday there was more bad news, as CBI Realized Sales plunged from -1 point to -11 points. The sharp drop surprised the markets, which had anticipated a gain of 4 points. The dismal reading points to weak sales, as the British consumer remains pessimistic and wary about opening her wallet and making purchases. Without strong consumer spending, the UK economy will have a tough time getting on track.

The markets are accustomed to ups and downs in US numbers, which has typified US releases in 2013. Last week saw mixed housing numbers, as Existing Home Sales missed the estimate, but New Home Sales looked very sharp. Unemployment Claims bounced back with a strong release, and the week ended with a rise in Core Durable Goods Orders. This week started off with a bang, as CB Consumer Confidence jumped from 68.1 points to 76.2 points, its best showing since June 2009. As well, the S&P/CS Composite-20 HPI rose by 10.9%, beating the estimate of 10.2%. This points to more activity in the US housing market. If US indicators continue to point upwards, we could see the greenback post further gains against the Canadian dollar.

Turning to the eurozone, there has been more talk of the ECB considering implementing negative interest rates? Recently, ECB Mario Draghi and other policymakers have expressed a willingness to consider the idea. At present, the ECB’s deposit rate stands at zero. On Monday, ECB Executive Board member Joerg Asmussen said that the ECB will continue it expansive monetary policy in order to boost the Eurozone economy, but urged caution on the question of negative rates. Asmussen warned that the ECB can’t simply fix uncompetitive economies by changing its monetary policy, such as the adopting negative interest rates. A move in this direction would likely hurt the euro, as investors would move funds out of the Eurozone in search of better rates of return.  

GBP/USD for Wednesday, May 29, 2013

GBP/USD May 29 at 14:50 GMT

GBP/USD 1.5115 H: 1.5146 L: 1.5008

GBP/USD Technical

GBP/USD has reversed direction and is posting sharp gains. The pair is testing support at 1.5111. The next line of support is at 1.5047. GBP/USD is facing resistance at 1.5203, a line which appears safe for now. This is followed by resistance at 1.5309.

Current range: 1.5111 to 1.5203

Further levels in both directions:

• Below: 1.5111, 1.547, 1.5000, 1.4873 and 1.4781
• Above: 1.5203, 1.5309, 1.5432 and 1.5577

OANDA’s Open Positions Ratio

The GBP/USD ratio is almost unchanged in the Wednesday session. This is not currently reflected in the pair’s movement, as the pound has recovered and posted gains against the dollar. If the pair continues to show volatility, we can expect the ratio to follow suit and swing into action.

GBP/USD continues to show volatility, posting sharp gains on Wednesday. We could see more activity on Thursday, as the US releases several key events.

GBP/USD Fundamentals

• 9:30 Bank of England MPC Member Charles Bean Speaks
• 10:00 British CBI Realized Sales Speaks. Estimate 4 points. Actual -11 points
• 17:00 US FOMC Eric Rosengren Speaks

*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.