The US dollar has reversed direction and is posting gains against the British pound. In Thursday’s North American session, the pound finds itself just below the 1.56 level. The dollar is broadly stronger following the release of the FOMC minutes, which indicated that the Fed plans to taper QE, but didn’t provide any specifics. In economic releases, Thursday’s highlight was US Unemployment Claims. The key indicator was a disappointment, coming in above the forecast, but the pound was unable to take advantage. There are no British releases on Thursday.
There has been a lot of speculation about when the Federal Reserve will taper its QE program, and the markets were hopeful that the release on Wednesday of the FOMC minutes of its most recent policy meeting would shed some light on the Fed’s plans. The minutes didn’t contain any dramatic news, but the US dollar was broadly stronger after their release. Fed officials were described as “broadly comfortable” with plans to taper QE, but remain split on the timing of such a move. The policymakers noted that recent US economic data was “mixed” and all members agreed that it was still too early to scale back the current QE program, under which the Fed purchases $85 billion in assets each month. The markets are anticipating that the Fed will make a move in the near future, and traders should be prepared for a scaling back of QE as early as September.
UK releases have been showing some improvement, and there was more good news on Wednesday. Public Sector Net Borrowing improved sharply, posting its first surplus since February, with a reading of -1.6 billion pounds. However, this fell short of the market estimate of -3.7 billion. Meanwhile, CBI Industrial Order Expectations, which has been mired in deep negative territory, climbed to the zero level. This easily beat the estimate of -8 points. The improving releases out of the UK have helped the pound post a strong rally against the dollar over the past two weeks.
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GBP/USD August 22 at 15:20 GMT
GBP/USD 1.5578 H: 1.5626 L: 1.5562
GBP/USD has lost ground, continuing the trend which started on Wednesday. The pair lost ground in the Asian session and dropped below the 1.56 line. The pair edged higher in the European session, but then retracted in North American trading. GBP/USD faces resistance at 1.5645. The next line of resistance is at 1.5756. This line has strengthened as the pair trades at lower levels.
On the downside, the GBP/USD is receiving support at 1.5527. This is not a strong line, and could face pressure if the pound continues to lose ground. This is followed by a strong support level at 1.5432.
- Current range: 1.5527 to 1.5645
- Below: 1.5527, 1.5432, 1.5309 and 1.5203
- Above: 1.5645, 1.5756, 1.5877, 1.6000 and 1.6071
The GBP/USD ratio has an overwhelming majority in favor of short positions, which outnumber long positions by almost 3:1. This reflects a strong bias in favor of the US dollar reversing direction and moving higher.
The pound looked sharp early in the week, but the US dollar has recovered nicely after reversing direction on Wednesday. The volatility could continue on Friday, as the UK releases GDP figures and the US posts New Home Sales.
GBP/USD Fundamentals
- 12:30 US Unemployment Claims. Estimate 329K. Actual 336K.
- 13:00 US Flash Manufacturing PMI. Estimate 54.1 points. Actual 53.9 points.
- 13:00 US HPI. Estimate 0.6%. Actual 0.7%.
- 14:00 US CB Leading Index. Estimate 0.5%. Actual 0.6%.
- 14:30 US Natural Gas Storage. Estimate 68B. Actual 57B.
- Day 1 – Jackson Hole Symposium.
- 19:15 US Treasury Secretary Jack Lew Speaks.