GBP/USD – Higher After Excellent UK Unemployment Numbers

The British pound posted gains on Wednesday, following a superb reading from British Claimant Count Change. The key employment release showed that unemployment claims posted their sharpest decline since June 2010. Meanwhile, the BOE minutes indicated that the votes on the most recent interest rate and asset purchase facility decisions were unanimous. In the North American session, the pound is trading in the high-1.51 range.

British Count Change has been posting declines throughout 2013, but the July release was outstanding. The indicator pointed to 21.2 thousand less unemployment claims, its sharpest decline in three years. The estimate stood at -7.5 thousand. However, the Unemployment Rate remained stuck at 7.8% for the third straight month, indicating weakness in the British labor market.

The UK released a host of inflation indicators on Wednesday, and most matched the forecast. CPI, the most important inflation index, climbed from 2.7% to 2.9%, but still remained below the estimate of 3.0%. The Bank of England recently commented on high inflation in the British economy, noting that it might have to adjust its target of 2.0% to a higher level.

US releases failed to impress on Wednesday. Building Permits, a key release, fell from 0.97 million to 0.91 million. This was way off the forecast of 1.00 million. There was no relief from Housing Starts, which dropped from 0.91 million to 0.84 million, well below the estimate of 0.96 million. These numbers could point to turbulence in the construction and housing sectors, and weak numbers in these industries could hamper the US recovery.

The Federal Reserve takes center stage on Wednesday, as Fed chief Bernard Bernanke is testifying before the House Financial Services Committee in Washington. Bernanke will be questioned over the Fed’s Semiannual Monetary Policy Report, and the markets will be looking closely for any hints about QE tapering. The markets posted huge moves last week, after the release of the Fed’s policy minutes and dovish comments from Bernanke. The minutes pointed to a split amongst Fed policymakers weather to tighten QE sometime in 2013, or wait until the labor market improves. This was followed by speech by Bernanke, in which he said that the Fed would maintain a loose monetary policy for the foreseeable future, due to low levels of inflation and a high US unemployment rate. The dollar took a sharp hit following these developments. The markets will be looking for some guidance from Bernanke’s testimony, and if he hints at a timeline for QE tapering, we could see some volatility in the currency markets.

GBP/USD for Wednesday, July 17, 2013

GBP/USD July 17 at 15:45 GMT

GBP/USD 1.5188 H: 1.5194 L: 1.5168

GBP/USD Technical

GBP/USD has moved higher in Wednesday trading. The pound touched a high of 1.5268 in the European session, but was unable to maintain these gains, and retracted back below the 1.52 line. The pair is currently putting pressure on 1.5203, and we could see this line break again if the pound pushes higher. There is stronger resistance at 1.5309. On the downside, the pair is receiving support at 1.5111. This is followed by the round number of 1.5000, which saw action last week.

•  Current range: 1.5111 to 1.5203

Further levels in both directions:

• Below: 1.5111, 1.5000, 1.4896, 1.4781, 1.4690 and 1.4465
• Above: 1.5203, 1.5309, 1.5432 and 1.5527

OANDA’s Open Positions Ratio

GBP/USD ratio is showing little change in Wednesday trading. This is not reflected in the current movement of the pair, as the pair has posted gains against the dollar. The ratio has a large majority of long positions, indicating that trader sentiment is strongly biased towards the pound continuing to make inroads against the dollar.

The pound got a boost from some very strong UK employment numbers. With the markets continuing to monitor Bernard Bernanke’s testimony in Washington, we could see more activity from GBP/USD during the day.

GBP/USD Fundamentals

• 8:30 British Claimant Count Change. Estimate -7.5K. Actual -21.2K.
• 8:30 British Unemployment Rate. Estimate 7.8%. Actual 7.8%.
• 8:30 Bank of England MPC Asset Purchase Facility Votes. Estimate 2-0-7. Actual 0-0-9.
• 8:30 Bank of England MPC Official Bank Rate Votes. Estimate 0-0-9. Actual 0-0-9.
• 8:30 Average Earnings Index. Estimate 1.4%. Actual 1.7%.
• 8:30 British Unemployment Rate. Estimate 7.8%. Actual 7.8%.
• 12:30 US Building Permits. Estimate 1.00M. Actual 0.91M.
• 12:30 US Housing Starts. Estimate 0.96M. Actual 0.84M.
• 14:00 US Fed Chairman Bernard Bernanke testifies before the House Financial Services Committee in Washington.
• 14:30 US Crude Oil Inventories. Estimate -1.9M. Actual -6.9M.
• 16:30 US Federal Reserve Governor Sarah Bloom Raskin Speaks.
• 18:00 US Beige Book.

*Key releases are highlighted in bold

*All release times are GMT

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