The British pound took a brief weekend break, but didn’t miss a step as it continues to post gains against the US dollar. In Monday’s North American session, GBP/USD is trading in the mid-1.53 range. In today’s only US release, Existing Home Sales was a disappointment, dropping to a two-month low. There are no British releases on Monday.
Last week, the pound posted sharp gains for the second consecutive week, and didn’t let tepid numbers out of the UK get in the way of its rally against the dollar. British Retail Sales posted a very small gain, while Public Sector Net Borrowing missed the estimate. In contrast, the US posted strong employment and manufacturing data on Thursday, but this didn’t impede the pound’s ascent. GBP/USD has gained over five cents in the past 10 days, as it continues to recover from a terrible slide that started in mid-June.
Finance ministers and central bankers from the G20 countries concluded a meeting in Moscow on the weekend. The G20 released a statement saying that future changes to monetary policy would be “carefully calibrated and clearly communicated”. This is likely a hint to the recent market turmoil in response to statements from the Federal Reserve regarding possible QE tapering. The Fed has not always sounded consistent, and predictably, the resulting uncertainty has rattled the markets. Leaders of the G20 will meet in St. Petersburg in September, and a final draft statement from the Moscow meeting noted that a plan to increase jobs and growth and rebalance debt will be ready for the September meeting.
Over in the US, Federal Reserve chair Bernard Bernanke was at center stage on Wednesday and Thursday, as he testified before Congress. However, Bernanke did not add anything we haven’t heard before, and his testimony was not a market-mover by any means. Bernanke reiterated that the Fed’s monetary policy would remain accommodative, and added that the Fed’s bond-buying program was “not on a preset course”. This vague statement leaves the Fed plenty of wiggle room to scale down QE should it choose to do so. Bernanke reiterated that any decision to scale down QE would depend on improving economic conditions. He noted that present US unemployment levels (7.6%) were “well above” normal levels, and was careful to stay away from presenting any specific time deadlines for scaling down QE. So, the message from the Fed to the markets seems to be that QE tapering is not on the table before the economy improves and unemployment falls.
GBP/USD for Monday, July 22, 2013
GBP/USD July 22 at 15:10 GMT
GBP/USD 1.5359 H: 1.5384 L: 1.5264
GBP/USD continues to climb higher in Monday trading. The pair flexed some muscle early in the European session and pushed above the 1.53 level. GBP/USD is receiving support at 1.5309. This is not a strong line, and could face pressure if the dollar fights back. The next support line is at 1.5203, protecting the 1.52 line. On the upside, the pair faces resistance at 1.5432. This line has held firm since late June. Will the pound continue its sharp rise and put pressure on this line? This is followed by resistance at 1.5527.
- Current range: 1.5309 to 1.5432
Further levels in both directions:
- Below: 1.5309, 1.5203, 1.5111, 1.5000, 1.4896 and 1.4781
- Above: 1.5432, 1.5527, 1.5645 and 1.5756
OANDA’s Open Positions Ratio
GBP/USD ratio is pointing to movement towards short positions. With the pound continuing to post strong gains on Monday, it is likely that some long positions have been covered, resulting in a greater proportion of open short positions. Since the pound started its sharp rally about 10 days ago, the ratio has see a strong shift towards short positions, and we now find that the ratio is almost split evenly.
The pound continues to post gains against the dollar, and has gained to close to one cent on Monday. We could see the pair continue to trade in the mid-1.53 range during the day.
14:00 US Existing Home Sales. Estimate 5.27M. Actual 5.08M.
*Key releases are highlighted in bold
*All release times are GMT