GBP/USD – Pound Quiet as May Meets with EU Leaders

The British pound is showing little movement in the Thursday session. In North American trade, GBP/USD is trading at 1.2670. On the release front, British CBI Industrial Order Expectations surged 16 points, crushing the forecast of 7 points. In the US, unemployment claims rose to 241 thousand, matching the forecast. On Friday, the US publishes New Home Sales.

Still smarting from the humiliating election results, British Prime Minister Theresa May is trying to cobble together a majority government. She has not reached an agreement with the DUP to enter the government, so her political situation remains precarious. May will attend an EU summit in Brussels on Thursday, and will brief the Europeans on how Britain plans to treat EU citizens living in the UK after Brexit. It will be interesting to see the reception she receives, as she comes to Brussels chastened and weakened since the election. There is plenty of rancor between the parties, and the players on both sides will need to control their egos and tempers in order to keep the divorce process amicable. Formal negotiations between the UK and the EU began this week, and both sides agreed that the first round of talks was held in a constructive atmosphere.

The Federal Reserve has sounded more hawkish of late, as underscored in last week’s rate statement. This stance is somewhat surprising, given the recent softness in the US economy. Most analysts had predicted a “dovish rate hike” but Fed policymakers were more upbeat than expected, even shrugging off persistently low inflation. The rate statement mentioned that the Fed plans to reduce its balance sheet later in 2017, although it did not provide further specifics. The balance sheet has ballooned to $4.5 trillion, which accumulated after the 2008 financial crisis, when the Fed went on a bond-buying spree to stimulate the economy. The reduction will be gradual, but still marks an important change in direction for the central bank. On Wednesday, FOMC member Patrick Harker said that he was in favor of the reduction commencing in September. The Fed has hinted at one more rate hike in the second half of 2017, and the markets have circled December as the most likely date for a rate move. The CME Group has pegged the odds of a September hike at just 13%, compared to 18% a week ago. However, the odds for a December increase are at 49%, and this could increase if Fed policymakers continue to wax positive about the economy.

UK Economy a Year On

May Faces EU Leaders as Negotiations Begin

GBP/USD Fundamentals

Thursday (June 22)

• 5:36 British 30-y Bond Auction. Actual 1.67%
• 6:00 British CBI Industrial Order Expectations. Estimate 7. Actual 16
• 8:30 US Unemployment Claims. Estimate 241K. Actual 241K
• 9:00 US HPI. Estimate 0.4%. Actual 0.7%
• 10:00 US FOMC Member Jerome Powell Speaks
• 10:00 US CB Leading Index. Estimate 0.4%. Actual 0.3%
• 10:30 US Natural Gas Storage. Estimate 55B. Actual 61B

Friday (June 23)

• 10:00 US New Home Sales. Estimate 599K

*All release times are EDT

*Key events are in bold

GBP/USD for Thursday, June 22, 2017

GBP/USD June 22 at 12:20 EDT

Open: 1.2671 High: 1.2687 Low: 1.2654 Close: 1.2666

GBP/USD Technical

• GBP/USD was flat in the Asian session. The pair posted slight losses in European trade but has recovered in North American trade
• 1.2571 is providing support
• 1.2706 is the next line of resistance

Further levels in both directions:

• Below: 1.2571, 1.2401 and 1.2313
• Above: 1.2706, 1.2865, 1.2946 and 1.3058
• Current range: 1.2571 to 1.2706

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged in the Thursday session. Currently, short positions have a majority (55%), indicative of trader bias towards GBP/USD breaking out and moving lower.

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.