GBP/USD – Little Movement as UK Manufacturing Data Matches Expectations

GBP/USD is having another quiet day, continuing the trend we saw on Tuesday. The pair is trading in the mid-1.53 range in the North American session on Wednesday. In economic news, the only British release of the day, CBI Industrial Order Expectations, matched the estimate. Today’s highlight was US New Home Sales, and the key indicator posted a multi-year high.

British CBI Industrial Order Expectations was released earlier, and the important manufacturing indicator continues to muddle deep in negative territory, posting a reading of -12 points. The good news is this was the best showing we’ve seen since last December, and the indicator managed to match the forecast. Over in the US, New Home Sales soared from 476 thousand to 497 thousand, its highest level in five years. The strong reading easily blew past the estimate of 482 thousand. The direction of the US housing market remains difficult to gauge, as Existing Home Sales, released earlier this week, dropped from the previous month.

One of the sore spots in the US economy has been the manufacturing sector, which has had a tough time competing on the global stage. The markets had high expectations for the Richmond Manufacturing Index, which was released on Tuesday. However, these hopes were in vain, as the indicator looked awful, plunging from +8 points to -11 points, its worst reading since September 2012. Last week, the Empire State Manufacturing Index and Philly Fed Manufacturing Index both looked sharp, but clearly the US manufacturing sector has a lot of room for improvement.

Will the Federal Reserve step in and scale down QE? This is the magic question facing the markets. Despite the zigzagging we’ve seen on this issue from the Fed, there is a strong likelihood that this will take place before the end of 2013, barring a major downturn by the US economy. There is growing speculation that the Fed could take action in September. Appearing on Capitol Hill last week, Fed chair Bernard Bernanke was careful not to get pinned down with any specific deadlines, and instead said that stronger growth and lower unemployment were the key factors to any action over QE. The problem with this approach is the markets remain in the dark, and every strong US release fuels expectation about QE tapering, while a weak release does the opposite. This of course, contributes to market instability, as we’ve seen in recent months with the US dollar. The G20 seemed to have this issue in mind when it issued a statement that member countries had agreed that future monetary policy moves would be “carefully calibrated and clearly communicated”. Whether the Fed will suddenly show its cards is doubtful, especially in light of Bernanke’s vague and rather dull performance in front of Congress last week.

GBP/USD for Wednesday, July 24, 2013

GBP/USD July 24 at 15:20 GMT

GBP/USD 1.5358 H: 1.5390 L: 1.5315

GBP/USD Technical

GBP/USD is trading quietly early in the North American session, and the proximate support and resistance levels remain in place (S1 and R1 above).  The pair hit a high of 1.5390 in the European session, but was unable to maintain this level and retracted. GBP/USD continues to receive support at 1.5309. This is not a strong line, and could face pressure if the dollar shows any strength. 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. 1.5527 is the next resistance line.

• 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 continues to point to movement in the direction of short positions, a trend we have seen all week. This is reflected in what we are seeing from the pair, as GBP/USD has moved slightly lower. Short positions now make up a majority of the ratio, a sharp contrast to what we saw in early July, when long positions dominated. The shift in the ratio is reflective of the sharp rally by the pound, which has resulted in numerous long positions being covered, thus increasing the proportion of open short positions.

The pound has taken a breather from its impressive rally, trading in the mid-1.53 range. Will the rally continue or will the dollar fight back? Today’s releases out of the US and UK did not affect the pair, and we are not likely to see much movement for the remainder of the day.

GBP/USD Fundamentals

• 10:00 British CBI Industrial Order Expectations. Estimate -12 points. Actual -12 points.
• 14:00 US New Home Sales. Estimate 482K. Actual 497K.
• 14:30 US Crude Oil Inventories. Estimate -2.5M. Actual -2.8M.

*Key releases are highlighted in bold

*All release times are GMT

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