GBP/USD - Pound Keeps Rolling After Thumbs Up From BOE

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

By Kenny Fisher

GBP/USD continues to post gains on Thursday, as the pair trades in the low-1.66 range in the North American session. The pound has been red hot, climbing 300 points against the dollar in just one week and hitting its highest levels in almost three years. In economic news, US retail sales data weakened in January, while Unemployment Claims disappointed, coming in above the estimate. In the UK, today's sole release, RICS House Price Balance, dropped slightly in January.

The markets had little to cheer about on Thursday as all three US key releases disappointed. Unemployment Claims rose to 337 thousand, above the estimate of 331 thousand. This reading comes on the heels of JOLTS Job Openings earlier in the week, which also missed market expectations. Core Retail Sales dropped to 0.0%, a nine-month low. The estimate stood at 0.1%. Retail Sales brought no relief, slipping to -0.4%, short of the estimate of 0.0%. Will the US dollar take a hit after these dismal releases?

BOE Governor Mark Carney has done his best to dampen speculation about a rate hike in recent months, but with the UK economy continuing to improve, he was forced to change his stance this week. On Wednesday, Carney said that the central bank may have to raise interest rates in the second half of 2015 to keep inflation in check. The BOE sharply revised its growth forecast for 2014 to 3.4%, up from 2.8%, and added that inflation, which has fallen faster than expected, should remain close to the 2% target. The positive news was just the tonic the pound needed, and the currency responded by jumping about 150 points against the dollar on Wednesday.

Meanwhile, Federal Reserve chair Janet Yellen didn't generate much excitement in the markets when she testified before Congress on Tuesday. She said that the Fed plans to continue trimming QE, provided that the employment picture continues to improve and inflation rises. She acknowledged that event though the unemployment rate has improved steadily, the recovery in the labor market is far from complete and the Fed plans to keep interest rates at ultra-low levels. Yellen, who took over as Fed chair on February 1, is expected to continue the policies of her predecessor, Bernard Bernanke.

With the US economy pointed in the right direction, the Federal Reserve has implemented two tapers of $10 billion to the QE scheme, reducing QE to $65 billion each month. We could see another taper when the Fed meets in March. Former Fed chair Bernard Bernanke took his time making the decision, and the taper train will be hard to stop, barring any unexpected downturns in the economy. The Fed plans to wind down QE in $10 billion installments, completing the process by the end of 2014.

GBP/USD for Thursday, February 13, 2014

Forex Rate Graph 21/1/13

GBP/USD February 13 at 16:25 GMT

GBP/USD 1.6628 H: 1.6673 L: 1.6600

GBP/USD Technical

S3 S2 S1 R1 R2 R3
1.6329 1.6416 1.6549 1.6705 1.6896 1.6964
Click to enlarge
  • GBP/USD has posted gains in Thursday trading. The surging pound touched a high of 1.6673 in the European session but soon retracted.
  • 1.6549 is providing support. This is followed by support at 1.6416.
  • 1.6705 is the next resistance line. Next is resistance at 1.6896, which has remained firm since August 2009.
  • 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, 1.6896, 1.6964 and 1.7087

OANDA's Open Positions Ratio

GBP/USD ratio is pointing to sharp gains in short positions. With the pound posting huge gains on Wednesday, numerous long positions have been covered, resulting in a larger percentage of open short positions. A large majority of the open positions in the GBP/USD ratio are short, indicative of a trader bias towards the dollar recovering from its sharp slide.

The pound continues to post gains against the retreating US dollar. GBP/USD is steady in North American trading.

GBP/USD Fundamentals

  • 10:00 British CB Leading Index. Actual -0.1%.
  • 10:30 BOE Inflation Report.
  • 10:30 BOE Governor Mark Carney Speaks.
  • 15:00 US Crude Oil Inventories. Estimate 2.5M. Actual 3.3M.
  • 18:01 US 10-year Bond Auction.
  • 19:00 US Federal Budget Balance. Estimate -16.4B.

*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.