GBP/USD: Pound Keeps Rolling On Strong U.K. Manufacturing PMI

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

By Kenny Fisher

The British pound continues to post gains on Tuesday, as GBP/USD trades in the mid-1.71 range in the North American session. On the release front, British Manufacturing PMI improved slightly in June to 56.7 points, posting a seven-month high. In the US, ISM Manufacturing PMI showed little change and met expectations.

The British pound continues to gain ground against the retreating US dollar, touching its highest level since October 2008. Although Governor Mark Carney stated last week that any rate hike would be "limited and gradual", there is growing sentiment in the markets that the BOE could raise rates before the end of 2014, rather than sometime in 2015, as the BOE had been insisting until very recently. The pound has taken full advantage of speculation over higher rates, and has soared about 350 points in the past two weeks against the US dollar.

The red-hot UK housing market has been a concern to the markets and UK policymakers for some time, as a sudden drop in house prices could rattle the UK economy. Last week, BOE Governor Carney announced measures to ally concerns of a housing bubble, toughening lending criteria and putting a cap on mortgages. Speaking after the publication of the BOE Financial Stability Report, Carney sounded upbeat about the British economy but noted that the housing market remained the number one risk to the country's financial stability. Carney stated that the BOE had reached its "limit of tolerance" regarding the housing market. We'll have to wait and see if the measures announced by the BOE will succeed in cooling the UK housing market.

In the US, the week started out in impressive style, as Pending Home Sales jumped 6.1%, crushing the estimate of 1.4%. This was the strongest gain since May 2013. US Housing numbers were excellent last month, as New Home Sales and Existing Home Sales both beat their estimates. Last week's dismal Q1 GDP reading has weighed on the US dollar, so the currency could lose even more ground to the pound if the markets aren't happy with this week's numbers.

US Final GDP in Q1 was much worse than expected, but more recent US releases have been stronger, notably housing data and consumer confidence. The markets are keeping a close eye on Wednesday's ADP Nonfarm Payrolls, which precedes the official Nonfarm Payrolls. The latter is one of the most important economic indicators, so the ADP release could be a harbinger of what to expect from Nonfarm Payrolls at the end of the week.

GBP/USD for Tuesday, July 1, 2014

GBP/USD July 1 at 17:00 GMT

GBP/USD 1.7145 H: 1.7162 L: 1.7096

GBP/USD Technical

S3 S2 S1 R1 R2 R3
1.6825 1.6920 1.7000 1.7183 1.7228 1.7383
Click to enlarge
  • GBP/USD was flat in the Asian session and posted gains in European trading. The pair is unchanged in North American trading.
  • 1.7000 has strengthened in support as the pound trades at higher levels.
  • 1.7183 is an immediate resistance line. This is followed by 1.7228, which has held firm since October 2008.
  • Current range: 1.7000 to 1.7183.

Further levels in both directions:

  • Below: 1.7000, 1.6920, 1.6825 and 1.6700
  • Above: 1.7183, 1.7228, 1.7383 and 1.7482

OANDA's Open Positions Ratio

GBP/USD is pointing to gains in long positions on Tuesday, reversing the direction we say a day earlier. This is consistent with the movement of the pair, as the pound has posted gains. A strong majority of open positions in the GBP/USD ratio are short, indicative of a trader bias towards the dollar reversing its current downward trend and moving higher.

GBP/USD Fundamentals

  • 8:30 British Manufacturing PMI. Estimate 56.7 points. Actual 57.5 points.
  • 12:00 US Treasury Secretary Jack Lew Speaks.
  • 13:45 US Final Manufacturing PMI. Estimate 57.5 points. Actual 57.3 points.
  • 14:00 US ISM Manufacturing PMI. Estimate 55.6 points. Actual 55.3 points.
  • 14:00 US Construction Spending. Estimate 0.5%. Actual 0.1%.
  • 14:00 US IBD/TIPP Economic Optimism. Estimate 48.9 points. Actual 45.6 points.
  • 14:00 US ISM Manufacturing Prices. Estimate 60.0 points. Actual 58.0 points.
  • All Day - US Total Vehicle Sales. Estimate 16.5M.

*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.