GBP/USD - Steady As U.K. Manufacturing PMI Dips

by: Dean Popplewell

By Kenny Fisher

It's been a holiday full of cheer and good tidings for the British pound, which has jumped over two cents against the dollar since Christmas Day. In Thursday's European session, GBP/USD is trading in the mid-1.65 range. Taking a look at economic releases, UK Manufacturing PMI dropped in November and fell short of the estimate. In the US, there are two key events on today's schedule - Unemployment Claims and ISM Manufacturing PMI.

British Manufacturing PMI dropped to 57.3 points in November, down from 58.4 in the previous release. The markets had expected a slightly better result, with the estimate standing at 58.3 points.

US consumer confidence is on the rise, as CB Consumer Confidence soared to 78.1 points, up from 70.4 a month earlier. This easily beat the estimate of 76.5 points. Consumer confidence is a closely watched event, as a stronger reading usually translates into increased consumer confidence, which is critical for economic growth. On Monday, US Pending Home Sales did not impress, gaining just 0.2% in November. This was well short of the forecast of 1.1%. However, the modest gain broke a string of five straight declines, so perhaps the key indicator has turned the corner on its recent downward spiral. Last week's housing data looked much stronger, as New Home Sales beat the forecast.

A quiet holiday week didn't stop the pound from posting gains against the US dollar. Low liquidity over a holiday period can lead to strong currency movements, and we got a taste of that on Friday. The pound shot up about 160 points before retracting to lower levels. As well, the recent Fed taper decision has fuelled a "risk on" atmosphere which has led to increased selling of the safe-haven US dollar and boosted the pound. With thin trade expected to continue until after New Year's Day, we could see further volatility from GBP/USD.

US Unemployment Claims dropped sharply on Thursday. The indicator fell to 338 thousand, down from 379 thousand in the previous release. The estimate stood at 346 thousand. The sharp reading was a dramatic reversal from numbers over the past two weeks, which were much higher than the forecast. With the Federal Reserve poised to begin its long-awaited QE taper next month, employment releases have taken on added significance. If the labor market continues to improve, we are likely to see further QE reductions in 2014, which would give a boost to the US dollar against its major rivals.

There was some holiday cheer from US releases last week, as manufacturing and housing numbers pointed upwards. Core Durable Goods Orders posted a strong gain of 1.2%, its best showing since April. The key manufacturing indicator had posted four consecutive declines, so the sharp gain was welcome news. Durable Goods Orders bounced back from a sharp decline in October with a gain of 3.5%, well above the estimate of 1.7%. New Homes Sales also impressed with a five-month high, climbing to 464 thousand. The estimate stood at 449 thousand.

GBP/USD for Tuesday, December 31, 2013

Forex Rate Graph 21/1/13

GBP/USD December 31 at 15:50 GMT

GBP/USD 1.6544 H: 1.6547 L: 1.6475

GBP/USD Technical

S3 S2 S1 R1 R2 R3
1.6231 1.6300 1.6476 1.6600 1.6705 1.6964
  • GBP/USD continued to post gains in Tuesday trading. The pair posted gains during a volatile European session and has edged higher in North American trading.
  • 1.6476 is providing support. This is followed by support at the round number of 1.6300.
  • On the upside, the pair is facing resistance at 1.6600. Will this key line come under pressure from the rising pound? This is followed by resistance at 1.6705.
  • Current range: 1.6476 to 1.6600

Further levels in both directions:

  • Below: 1.6476, 1.6300, 1.6231, 1.6125 and 1.6000
  • Above: 1.6600, 1.6705, 1.6964 and 1.7182

OANDA's Open Positions Ratio

GBP/USD ratio has reversed directions and is pointing to gains in short positions in Tuesday trading. This is not consistent with the pair's movement, as the pound continues to climb to higher levels. A large majority of the open positions are short, indicative of a trader bias towards the dollar reversing directions and moving upwards.

The pound continues to roll and is trading in the mid-1.65 range. GBP/USD posted strong gains in the European session and the pound continues to put pressure on the dollar in the North American session.

GBP/USD Fundamentals

  • 14:00 US S&P/CS Composite-20 HPI. Estimate. 13.4%. Actual 13.6%.
  • 14:45 US Chicago PMI. Estimate. 61.3 points. Actual 59.1 points.
  • 15:00 US CB Consumer Confidence. Estimate. 76.5 points. Actual 78.1 points.

*Key releases are highlighted in bold

*All release times are GMT