GBP/USD – UK Jobless Claims Plunges but Pound Under Strong Pressure

GBP/USD is losing ground in Wednesday trading, as the pair has dropped to the mid-1.59 range in Wednesday’s North American session. In economic news, British Claimant Count Change plummeted to its lowest level in sixteen years, but the Unemployment Rate remained stuck at 7.7%. In the US, NAHB Housing Market Index missed the estimate. Meanwhile, high-level talks continue in Washington, as the Republicans and Democrats race against the clock to reach an agreement on raising the debt ceiling before Thursday’s deadline.

In the UK, British Claimant Count Change continues to improve, and the key indicator posted its best release since June 1997, with a decrease of 41.7 thousand claims. This crushed the estimate of -24.3 thousand. The stellar reading was tempered, however, by the Unemployment Rate, which was remained unchanged at 7.7%. This means that unemployment in the UK will likely fall slowly. The BOE has said that it will not consider raising rates before unemployment dips below 7%, which it predicts will not occur before late 2016. However, many investors feel that with the economy picking up steam, we could drop below the 7% level, and see a rate hike in early 2015.

The clock continues to tick away as politicians in Washington scramble to reach an agreement on the debt limit. The US debt stands at $16.7 trillion, and the debt limit will be reached on Thursday if Congress fails to reach an agreement to raise the limit. If the limit is reached, the US treasury will be unable to pay all of the country’s bills. This could lead to the US defaulting on its debt, which could cause chaos in the domestic and international markets. The Republicans have floated proposals which would delay some provisions in President Obama’s healthcare plan. The Democrats have countered that they will only talk about health care once an agreement is reached. With both sides continuing to play hardball, the relative calm we’ve seen in the markets could quickly dissipate if the two sides cannot reach some compromise.

As the politicians in Washington continue to squabble and shoot down rival proposals to end the debt deadlock, Fitch Ratings warned on Tuesday that it could cut the US’s triple AAA rating if the crisis is not resolved. Fitch stated that it would not make any moves before early 2014, but the statement reflects growing frustration in the markets over the continuing inability of Congress to agree on a budget or the raising of the debt ceiling. The well-respected ratings agency has put the US debt on a negative watch and said that the crisis had cast doubt over the credit of the United States and had undermined confidence “in the role of the US dollar as the pre-eminent global reserve currency”.

With the markets transfixed by the crisis in Washington, US economic releases, even major events, have been shunted to the backburners. However, Thursday’s US Unemployment Claims is a key release that could affect the US dollar. With major releases such as Non-Farm Payrolls on hold due to the US shutdown, Unemployment Claims has magnified in its importance. Last week’s release was not considered accurate due to technical problems, so tomorrow’s numbers are being eagerly awaited. The markets are bracing for another weak release, with an estimate of 357 thousand.

GBP/USD for Wednesday, October 16, 2013

GBP/USD October 16 at 14:50 GMT

GBP/USD 1.5932 H: 1.6058 L: 1.5950

GBP/USD Technical

• The British pound is showing volatility and has dropped sharply in the North American session.
• The pair is facing resistance at the round number of 1.6000. This is followed by a resistance line at 1.6125.
• On the downside, the pair is receiving support at 1.5877. Given the pound’s sharp slide, this line cannot be considered safe. This is followed by support at 1.5756.
• Current range: 1.5877 to 1.6000.

Further levels in both directions:

• Below: 1.5877, 1.5756, 1.5645 and 1.5527
• Above: 1.6000, 1.6125, 1.6231, 1.6300 and 1.6421

OANDA’s Open Positions Ratio

GBP/USD ratio is pointing to movement towards long positions in Wednesday trading. This is a result of a sharp drop by the pound on Wednesday, which has led to numerous short positions being covered, which has resulted in an increased percentage of open long positions. A majority of the open positions remain short, reflecting a trader bias towards the US dollar posting further gains against the pound.

GBP/USD is under pressure in the North American session, and the pair has dropped to the low-1.59 range. With negotiations going down to the wire in Washington, we could see the pair continue to show volatility during the day.

GBP/USD Fundamentals

• 8:30 British Claimant Count Change. Estimate -24.3K. Actual -41.7K.
• 8:30 British Unemployment Rate. Estimate 7.7%. Actual 7.7%.
• 8:30 British Average Earnings Index. Estimate 1.0%. Actual 0.7%.
• 9:00 Bank of England MPC Member Spencer Dale Speaks.
• 14:00 US NAHB Housing Market Index. Estimate 58 points. Actual 55 points.
• 18:00 US Beige Book.
• 21:30 US FOMC Member Esther George Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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