GBP/USD - Pound Shrugs Off Weak Manufacturing Numbers

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

By Kenny Fisher

GBP/USD has edged higher in Friday trading, as the pair is in the mid-1.64 range in the European session. In economic news, Manufacturing Production gained in January but fell short of the estimate. Trade Balance improved nicely, posting its smallest deficit in over a year. Later in the day, we'll get a look at NIESR GDP, which tracks British GDP on a monthly basis. In the US, all eyes are on the Nonfarm Payrolls, which will be released later in the day, along with the Unemployment Rate.

The highlight of the week is the (official) Nonfarm Employment Change, which will be released later on Friday, together with the Unemployment Rate. Earlier this week, ADP Non-Farm Employment Change disappointed badly, sliding to 175 thousand in January, compared to 238 thousand a month earlier. This was well shy of the estimate of 191 thousand. Is the ADP release a prelude to grim tidings from Non-Farm Payrolls on Friday? If the NFP falters as well, the Fed could delay its next QE taper and the fallout from such a negative message could hurt the US dollar. This key release could dictate whether the Federal Reserve goes ahead with a third QE taper in February. The Federal Reserve has scaled down its bond-buying scheme with two tapers of $10 billion, reducing QE to $65 billion each month. Barring any unexpected downturns in the US economy, we could see QE wrapped up the end of 2014.

Meanwhile, there was also good news on the US employment front this week, as Unemployment Claims dropped to 331 thousand, beating the estimate of 337 thousand. As well, ISM Non-Manufacturing PMI, a key event, improved in the January release. The index came in at 54.0 points, up from 53.0 a month earlier. This was slightly above the estimate of 53.6 points. US manufacturing numbers continue to slip, as the ISM Manufacturing PMI dropped sharply and sagged to a seven-month low.

There were no surprises from the BOE, which kept its asset purchase facility and interest rate levels unchanged. QE remains pegged at 375 billion pounds, while the benchmark interest rate stays at 0.50%. With the British economy showing marked improvement, there is pressure on the BOE to raise interest rates, but Governor Mark Carney has balked until now. We'll get a look at the BOE Inflation Report and the Unemployment Rate later in the month, and if these key indicators are positive, speculation will increase about a rate hike.

British Manufacturing numbers disappointed on Friday, as Manufacturing Production posted a 0.3% gain in January. This was up from 0.0% a month ago, but fell short of the estimate of 0.6%. Industrial Production followed suit, posting a gain of 0.4% but missing the forecast of 0.7%. With Manufacturing PMI weakening in January, there is trouble afoot in the UK manufacturing sector.

GBP/USD for Friday, February 7, 2014

Forex Rate Graph 21/1/13

GBP/USD February 7 at 13:30 GMT

GBP/USD 1.6338 H: 1.6344 L: 1.6273

GBP/USD Technical

S3 S2 S1 R1 R2 R3
1.6125 1.6244 1.6329 1.6416 1.6549 1.6705
Click to enlarge
  • GBP/USD has edged higher in Friday trade. The pair dropped to a low of 1.6303 but has since moved higher.
  • On the downside, 1.6329 is providing weak support. This line could be tested during the day. Next there is support at 1.6244.
  • 1.6416 is the next resistance line. This is followed by resistance at 1.6549.
  • Current range: 1.6329 to 1.6416

Further levels in both directions:

  • Below: 1.6329, 1.6231, 1.6125, 1.6050 and 1.60
  • Above: 1.6416, 1.6549, 1.6705 and 1.6964

OANDA's Open Positions Ratio

GBP/USD ratio has reversed directions on Friday, pointing to gains in short positions. This is consistent with the pair's movement, as the pound has posted slight gains. A large majority of the open positions in the GBP/USD ratio are short, indicative of a trader bias towards the dollar moving to higher ground.

The pound has shown little movement since Monday, but that could change in Friday's North American session, as the US releases the all-important Nonfarm Payrolls as well as the Unemployment Rate.

GBP/USD Fundamentals

  • 9:30 British Manufacturing Production. Estimate 0.6%. Actual 0.3%.
  • 9:30 British Trade Balance. Estimate -9.3B. Actual -7.7B.
  • 13:30 US Nonfarm Employment Change. Estimate 185K.
  • 13:30 US Unemployment Rate. Estimate 6.7%.
  • 13:30 US Average Hourly Earnings. Estimate 0.2%.
  • 15:00 British NIESR GDP Estimate.
  • 20:00 US Consumer Credit. Estimate 12.4B.

*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.