GBP/USD: Modest Losses as US Employment, Mfg. Data Impresses

GBP/USD has posted modest losses on Thursday, as the pair trades at the 1.71 line in the North American session. On the release front, it was a busy day in the US. Unemployment Claims looked sharp, and the Philly Fed Manufacturing Index soared last month. However, Building Permits and Housing Starts softened in June. There are no British releases on Thursday.

US Unemployment Claims dropped slightly to 302 thousand, beating the estimate of 310 thousand. This figure marks a seven-week low, as the economy continues to churn out impressive employment data. At the same time, the housing sector is struggling, and Building Permits fell to 0.96 million, its lowest level since January. The markets had expected a much stronger reading, with an estimate of 1.04M. Housing Starts followed suit, coming in at 0.89 million, compared to an estimate of 1.02 million. Finally, the Philly Fed Manufacturing Index sparkled, jumping to 23.9 points, well above the estimate of 15.6 and its best showing since February 2011.

Federal Reserve Chair Janet Yellen concluded two days of testimony on Capitol Hill on Wednesday, testifying before the House Financial Services Committee. Yellen declined to answer questions about when the Fed would begin to raise rates, but she did acknowledge that most economists expect the Fed to make a move in the third quarter of 2015. On Tuesday, the dollar moved higher when Yellen said that the economy still required monetary stimulus, but rates could increase sooner than expected if inflation and job numbers improved more quickly than anticipated. The Fed’s asset purchase program (QE) has flooded the economy with over $2 trillion, keeping interest rates at ultra-low levels, but the Fed has been steadily reducing the program since last December. Currently, the Fed is pumping $45 billion/month into the economy, and the next taper is expected in August, with plans to terminate QE in October.

British employment numbers were excellent last month, but the impressive data was greeted with a yawn by the high-flying pound. Claimant Count Change came in at -36.3 thousand, easily beating the estimate of -27.1 thousand. The unemployment rate dipped to the key level of 6.5%, which had been touted earlier in the year as a threshold level for a rate hike by the BOE. This matched the estimate.

On Tuesday, British CPI caught the markets by surprise, as the key index jumped to 1.9%, its highest level since January. The rise in inflation has increased speculation about a rate hike by the BOE. However, BOE Governor Mark Carney, testifying before the House of Commons Treasury Committee, said that the central bank would not provide forward guidance as to when the Bank would raise interest rates. Carney added that a decision to raise rates will be driven by market data. So, it appears that market speculation as to when the BOE might make a rate move will only increase as the BOE is intent on keeping the markets in the dark until such time that a rate hike is announced.

GBP/USD for Thursday, July 17, 2014

GBP/USD July 17 at 15:30 GMT

GBP/USD 1.7102 H: 1.7144 L: 1.7086

GBP/USD Technical

• GBP/USD edged lower late in the Asian session as this continued in the European session. The pair is almost unchanged in the North American session.
• 1.7000 continues to provide support the pair.
• On the upside, 1.7183 is the next resistance level. This is followed by 1.7228, which has held firm since October 2008.
• Current range: 1.7000 to 1.7183.

Further levels in both directions:

• Below: 1.7000, 1.6920, 1.6825 and 1.6700
• Above: 1.7183, 1.7228, 1.7383 and 1.7482

OANDA’s Open Positions Ratio

GBP/USD is pointing to gains in long positions in Thursday trade, continuing the direction seen a day earlier. This is not consistent with the movement of the pair, as the pound has posted losses. A substantial majority of open positions in the GBP/USD ratio are short, indicative of a trader bias towards the dollar continuing to move higher.

GBP/USD Fundamentals

• 12:30 US Building Permits. Estimate 1.04MK. Actual 0.96M.
• 12:30 US Unemployment Claims. Estimate 310K. Actual 302K.
• 12:30 US Housing Starts. Estimate 1.02M. Actual 0.89M.
• 14:00 US Philly Fed Manufacturing Index. Estimate 15.6 points.  Actual 23.9 points.
• 14:30 US Natural Gas Storage. Estimate 99B.

* Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.