GBP/USD – Pound Jumps, Retracts as Trump Victory Stuns Markets

GBP/USD recorded sharp gains on Wednesday, but then retracted and gave up these gains. In the North American session, the pair is trading slightly above the 1.24 line. The volatility we are seeing on the markets was triggered by the surprising victory of Donald Trump in the US presidential election. Trump garnered 276 electoral votes, beating Hillary Clinton who won 218 electoral votes. On the economic front, Britain’s trade deficit widened to GBP 12.7 billion, well above the estimate of GBP 11.3 billion. There are no major releases out of the US and no indicators in Canada on Wednesday. On Thursday, the US will publish unemployment claims, with the estimate standing at 267 thousand.

Hillary Clinton was widely expected to cruise to the White House, as pundits and the American media gave Donald Trump little chance of winning (a Reuters release on Monday said that Clinton had a 90 percent  chance of winning). Trump’s upset election victory has stunned global markets, which are in turmoil on Wednesday as the unthinkable has become reality. The US dollar took a hit during the Asian session, climbing above the 1.25 line. However, the currency has since rebounded and recovered these losses. The volatility that we’re seeing indicates that global markets were poorly positioned heading into the vote, overconfident that voters would reject Trump and hand Clinton a victory.

The news of a Trump electoral victory also shook up the odds of a December rate hike by the Federal Reserve. The odds dropped as low as 40 percent earlier in the day, but have recovered and actually increased. Currently, the markets have priced in at quarter-point hike at 76 percent, up from 71 percent just prior to the election. We could see further movement in the odds in the aftermath of the Trump victory, but it’s looking quite positive for a rate hike, which would mark the first rate move by the Fed since last December.

British data in the third quarter continues to exceed market expectations. This has been especially impressive, as third quarter numbers have followed the Brexit referendum vote in late June. There were dire warnings about fallout from the June Brexit vote, but the harm to the economy was not nearly as severe as many analysts expected. On Tuesday, Manufacturing Production, a key event, gained 0.6% in September. This marked its best gain since April. Last week the BoE was forced to backtrack and acknowledge the steady performance of the economy, as the bank revised upwards its growth forecasts. Stronger inflation numbers and solid data have given the BoE some breathing room, allowing the bank to avoid a rate cut at last week’s policy meeting.

GBP/USD Fundamentals

Wednesday (November 9)

• 4:30 British Goods Trade Balance. Estimate -11.3B. Actual -12.7B
• 10:00 US Final Wholesale Inventories. Estimate 0.2%. Actual 0.1%
• 10:30 US Crude Oil Inventories. Estimate 1.3M
• 13:00 British BOE Chief Economist Andy Haldane Speaks
• 13:01 US 10-year Bond Auction
• 19:01 British RICS House Price Balance. Estimate 18%

Thursday (November 10)

• 8:30 US Unemployment Claims. Estimate 267K

*All release times are EDT

* Key events are in bold

GBP/USD for Wednesday, November 9, 2016

GBP/USD November 9 at 10:50 EDT

Open: 1.2382 High: 1.2546 Low: 1.2336 Close: 1.2424

GBP/USD Technical

• GBP/USD posted sharp gains in the Asian session but gave up most of these gains in European trade. GBP/USD has been choppy in North American trade
• 1.2351 is providing support
• There is resistance at 1.2479

Further levels in both directions:

• Below: 1.2351, 1.2272 and 1.2120
• Above: 1.2479, 1.2620 and 1.2778
• Current range: 1.2351 to 1.2479

OANDA’s Open Positions Ratio

GBP/USD ratio is showing strong gains in long positions in the Wednesday session. Currently, long positions command a majority (66%), indicative of trader bias towards GBP/USD continuing to move upwards.

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.