GBP/USD - Pound Loses Ground After Strong Rally

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 |  Includes: FXB, UDN, UUP
by: Dean Popplewell

By Kenny Fisher

The British pound has moved lower on Friday, as the pair trades in the high-1.65 range in the European session. Despite today's losses, the pound has enjoyed an excellent week, jumping about 150 points. In economic news, British BBA Mortgage Approvals improved in December, but fell short of expectations. There are no US releases on Friday.

On Thursday, the US posted its first releases of the week, and the numbers were a mix. Unemployment Claims was unchanged at 326 thousand, another strong reading for one of the most important economic indicators. This beat the estimate of 331 thousand, the third straight week that the reading has surpassed the forecast. US Exiting Home Sales was unable to keep pace, however. The key indicator dropped to 4.87 million, down from 4.90M a month earlier and shy of the estimate of the 4.94 million. This was the indicator's fourth consecutive drop, adding to concern about the health of the US housing industry.

The UK Unemployment Rate dropped to 7.1% in December, down from 7.4% a month earlier. The reading caught the attention of the markets, as the BOE has previously stated that the 7.0% unemployment level was a threshold at which it would consider raising interest rates, which currently are at 0.50%. However, the market excitement is likely premature, as the BOE has recently noted that the 7.0% threshold would by no means trigger a rate increase. In the minutes of the BOE's recent policy meeting, published on Wednesday, the Bank noted that the 7.0% level would likely be met earlier than anticipated, but this did not mean that the BOE would immediately respond with a rate hike. Nonetheless, the pound shot higher on Wednesday, and there's little doubt that the Bank will feel increased pressure to raise rates if the unemployment rate continues to drop.

The World Economic Forum continues in Davos, Switzerland. The prestigious event brings together political officials, head of foreign banks and business people from dozens of countries meet, mingle and conduct business. BOE Governor Mark Carney will address a session at the forum later in the day. Traders should note that currency markets can be affected by statements issued at the forum, particularly those made by central bankers or other senior officials.

GBP/USD for Friday, January 24, 2014

Forex Rate Graph 21/1/13

GBP/USD January 24 at 12:10 GMT

GBP/USD 1.6586 H: 1.6668 L: 1.6567

GBP/USD Technical

S3 S2 S1 R1 R2 R3
1.6329 1.6416 1.6549 1.6705 1.6964 1.7182
Click to enlarge
  • GBP/USD has reversed directions and has lost ground in Friday trading. The dollar has been putting strong pressure on the pound throughout the European session.
  • On the downside, 1.6549 continues to provide support. This line could be tested if the pound continues to retreat. This is followed by a stronger line at 1.6416.
  • 1.6705 is the next line of resistance. This is followed by resistance at 1.6964.
  • Current range: 1.6549 to 1.6705

Further levels in both directions:

  • Below: 1.6549, 1.6416, 1.6329, 1.6231 and 1.6125
  • Above: 1.6705, 1.6964, 1.7182 and 1.7246

OANDA's Open Positions Ratio

GBP/USD ratio continues to point to gains in short positions in Friday trading. This is consistent with the pair's movement, as the dollar has pushed higher. A large majority of the open positions in the GBP/USD ratio are short, indicative of a trader bias towards the dollar continuing to gain ground.

After an impressive rally this week, GBP/USD has faltered on Friday. The pound is under strong pressure in the European session.

GBP/USD Fundamentals

  • 9:30 British BBA Mortgage Approvals. Estimate 47.2K. Actual 45.6K.
  • 12:05 Bank of England Governor Mark Carney Speaks At World Economic Forum.

*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.