GBP/USD – Almost Unchanged as UK and US Post Key Releases

There’s plenty of action as the US and UK have released major indicators on Thursday. However, GBP/USD has shrugged off these releases and is not showing much activity. In the North American session, the pair is trading slightly above the 1.53 line. In economic news, British Preliminary GDP posted a gain and matched the forecast. US releases pointed in all directions today. Unemployment Claims was higher and missed the estimate. Core Durable Goods Orders dropped to a three-month low, while Durable Goods Orders easily beat the estimate.

The UK released Preliminary GDP earlier today. There are three versions of GDP, and Preliminary GDP is the earliest one and has the most impact on the markets. The key indicator improved from 0.3% to 0.6%, matching the forecast. In the US, the news was not as positive. Unemployment Claims was a disappointment, rising from 334 thousand to 343 thousand. The estimate stood at 339 thousand. Core Durable Goods Orders, another key event, slipped badly, dropping from 0.7% to a flat 0.0%. The markets were expecting a gain for the third consecutive month, with an estimate of 0.5%. Durable Goods Orders, a second tier release, looked much stronger, climbing from 3.6% to 4.2%, blowing past the estimate of 1.1%.

This week’s US housing releases has analysts scratching their heads, as the releases pointed in opposite directions. Earlier in the week, Existing Home Sales dropped from 5.18 million to 5.08 million, way off the forecast of 5.27 million. However, New Home Sales soared on Wednesday, jumping from 476 thousand to 496 thousand, well above the estimate of 482 thousand. This was the key housing indicator’s best performance in five years. With mixed housing releases this week, the markets will have to wait for the August releases to get a better handle on the direction of the US housing industry.

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 as early as 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 Thursday, July 25, 2013

GBP/USD July 25 at 14:30 GMT

GBP/USD 1.5313 H: 1.5386 L: 1.5265

GBP/USD Technical

GBP/USD is trading quietly 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 1.5386 in the European session, but was unable to maintain this level and dropped below the 1.53 line before recovering. GBP/USD is testing support at 1.5309. This line could fall if the pound loses ground. The next support line is at 1.5203, protecting the 1.52 line. On the upside, the pair continues to face 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 has shifted directions in Thursday trading, and is pointing to movement towards long positions. This is not reflected in what we are currently seeing from the pair, as GBP/USD has shown little net movement. 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 steadied after losing ground on Wednesday, as the US posted a superb housing release. Today’s releases out of the US and UK did not affect the GBP, and we could see the pair stick close to the 1.53 line for the remainder of the day.

GBP/USD Fundamentals

• 8:30 British Preliminary GDP. Estimate 0.6%. Actual 0.6%.
• 12:30 US Core Durable Goods Orders. Estimate 0.5%. Actual 0.0%.
• 12:30 US Unemployment Claims. Estimate 339K. Actual 343K.
• 12:30 US Durable Goods Orders. Estimate 1.1%. Actual 4.2%.
• 12:45 US Treasury Secretary Jack Lew Speaks.
• 14:30 US Natural Gas Storage. Estimate 44B. Actual 41B.

*Key releases are highlighted in bold

*All release times are GMT

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