GBP/USD has posted strong gains as the pair trades in the mid-1.64 range in the North American session. Trade has been light as British markets are closed for the Boxing Day holiday. In the US, Unemployment Claims dropped fell to 336 thousand.
US Unemployment Claims dropped sharply on Thursday. The indicator fell to 338 thousand, down from 379 thousand in the previous release. The estimate stood at 346 thousand. The sharp reading was a dramatic reversal from numbers over the past two weeks, which were much higher than the forecast. With the Federal Reserve poised to begin its long-awaited QE taper next month, employment releases have taken on added significance. If the labor market continues to improve, we are likely to see further QE reductions in 2014, which would give a boost to the US dollar against its major rivals.
There was some holiday cheer from US releases on Tuesday, as manufacturing and housing numbers pointed upwards. Core Durable Goods Orders posted a strong gain of 1.2%, its best showing since April. The key manufacturing indicator had posted four consecutive declines, so the sharp gain was welcome news. Durable Goods Orders bounced back from a sharp decline in October with a gain of 3.5%, well above the estimate of 1.7%. New Homes Sales also impressed with a five-month high, climbing to 464 thousand. The estimate stood at 449 thousand.
The year ended on a dramatic note as the US Federal Reserve announced last week that it would begin tapering its $85 billion QE program by $10 billion, commencing in January. This will reduce the Fed's asset purchases to $75 billion every month, comprised of $40 billion in Treasuries and $35 billion in mortgage bonds. The announcement came as somewhat of a surprise, as most analysts had expected the Fed to hold off on any QE reductions until early next year.
In its tapering announcement, the Federal Reserve was careful to separate tapering from rate hike expectations. Fed chairman Bernard Bernanke stated that interest rates are likely to remain low even after the unemployment rate drops below 6.5%. Previously, the Fed had stated that it would start to consider rate increases when unemployment fell below this level. With the US unemployment rate at 7.0%, it appears a safe bet that we won't see any change in US rates for quite some time.
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- GBP/USD December 26 at 15:55 GMT
- GBP/USD 1.6428 H: 1.6438 L: 1.6351
- GBP/USD has pushed higher in Thursday trading. The pair broke above the 1.64 line in the European session and continues to rise in North American trading.
- The round number of 1.6300 continues to provide support. This is followed by support at 1.6231.
- On the upside, the pair is facing resistance at 1.6476. This line has weakened after the pound's strong gains on Thursday. The next resistance line is at 1.6600, which has not been tested since August 2011.
- Current range: 1.6300 to 1.6476
Further levels in both directions:
- Below: 1.6300, 1.6231, 1.6125, 1.6000 and 1.5893
- Above: 1.6476, 1.66, 1.6705 and 1.6964
OANDA's Open Positions Ratio
GBP/USD ratio is showing little movement on Thursday, continuing the trend we have seen throughout the week. This is not reflected in what we are seeing from the pair, as the pound has moved higher against the dollar. Short positions continue to dominate the ratio, reflecting a trader bias towards the US dollar reversing its downward movement and gaining ground.
US Unemployment Claims sparkled, but it was the pound that has responded with solid gains on Thursday. The dollar remains under pressure in the North American session and we could see GBP/USD post further gains before the day is over.
GBP/USD Fundamentals
- 13:30 US Unemployment Claims. Estimate 338K. Actual 346K.