GBP/USD - Services PMI Propels Pound Close To 1.70

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

By Kenny Fisher

It's been a rough-and-tumble day for the US dollar, which has suffered sharp losses at the hands of the surging British pound. The sagging dollar continues to lose ground against its major rivals. In Tuesday's North American session, the pound has gained over 100 points, and is trading close to the psychologically important 1.70 level.

British PMIs continue to look strong, indicative of ongoing expansion throughout the British economy. Services PMIs rose to 58.7 points, marking a four-month high. This easily beat the estimate of 57.9 points. Last week, Manufacturing PMI came in at 57.3 points, easily beating the estimate of 55.4 points. Construction PMI remained high at 60.8 points, although this did fall short of the forecast of 62.2 points.

US employment releases looked excellent on Friday. Nonfarm Payrolls jumped to 288 thousand, easily beating the estimate of 216 thousand. The Unemployment Rate kept pace, dropping to 6.3%, its lowest level since September 2008. At the same time, the participation rate in the labor force dropped, so slack remains in the US job market, despite the strong releases in April.

As expected, the Federal Reserve trimmed its QE program by $10 billion on Wednesday. This marks the fourth cut since December, reducing the asset purchase scheme to $45 billion/month. The tapers are no longer creating headlines as they did just a few months ago, and the dollar didn't get any lift against its major rivals. What interested the markets more was the Fed statement that interest rates would remain low for a "considerable time" after QE ends. The markets expect QE to wind up before the end of the year, so we could see a rate hike in early 2015, depending of course, on the strength of the US economy and the job market.

GBP/USD for Tuesday, May 6, 2014

Forex Rate Graph 21/1/13

GBP/USD May 6 at 15:20 GMT

GBP/USD 1.6978 H: 1.6997 L: 1.6866

GBP/USD Technical

S3 S2 S1 R1 R2 R3
1.6705 1.6765 1.6896 1.7000 1.7210 1.7374
Click to enlarge
  • GBP/USD has posted strong gains in Tuesday trade.
  • On the upside, 1.70 is under strong pressure. The next resistance line is at 1.7210.
  • 1.6896 has reverted to a support role as the pound trades at higher levels. It is providing strong support.

Further levels in both directions:

  • Below: 1.6896, 1.6765, 1.6705 and 1.6549
  • Above: 1.70, 1.7210, 1.7374 and 1.7538

OANDA's Open Positions Ratio

GBP/USD ratio is pointing to gains in short positions in Tuesday trading. With the pair posting strong gains, numerous long positions have been covered, resulting in a greater percentage of open short positions. A large majority of the open positions in the GBP/USD ratio are short, indicative of a trader bias to the dollar reversing directions and moving upwards.

GBP/USD has posted strong gains on Tuesday. Will the pound break above the key 1.70 level?

GBP/USD Fundamentals

  • 8:30 British Services PMI. Estimate 57.9 points. Actual 58.7 points.
  • 12:30 US Trade Balance. Estimate -40.1B. Actual -40.4B.
  • 14:00 US IBD/TIPP Economic Optimism. Estimate 47.6 points. Actual 45.8 points.
  • 21:30 US FOMC Member Jeremy Stein Speaks.
  • 23:01 BRC Shop Price Index.

*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.