Market Overview

GBP/USD – Pound Begins Week with Losses

The British pound is posting losses against the US dollar in Monday's session. GBP/USD dropped below the 1.61 line, and is fallen to the 1.6040 level. With no economic releases out of either the UK or the US today, the markets are waiting for a speech on Monday by Federal Chair Bernard Bernanke at the University of Michigan.

Following some strong gains late last week, the pound has nosedived, and shed over one cent since Friday. The pound looked responded positively after the ECB voted unanimously to maintain interest rates at 0.75% last week. Although this move was widely expected, market sentiment rose after the announcement, for two reasons. First, the decision to stay the course was unanimous. Despite the serious challenges that the Eurozone is facing, notably the debt crisis, the ECB decided not to change its interest rate policy in order to bolster the Eurozone. Second, there was no indication from the ECB that it might resort to slashing rates in the near future. In doing so, the ECB is sending a strong message to the markets that for the near future at least, it is likely to make do with unconventional monetary steps as it tries to help along the Eurozone economy.

The markets also reacted positively to ECB President Draghi remarks following the rate decision. Draghi expressed confidence that the Eurozone economy is on the right path and will bounce back in 2013. For its part, the Bank of England elected to maintain rates at 0.50%, where they have been since early 2009. The BOE also decided to maintain its Asset Purchase Facility at the current rate of 375 billion pounds. Similar to the case with the ECB, the markets were pleased that the BOE did not feel a need to resort to drastic action, either in the form of lowering interest rates or increasing QE in order to bolster the UK economy. However, this positive sentiment proved to be short-lived, as the pound has coughed up most of the gains it garnered following the ECB decision.

In economic news, US Trade Balance numbers surprised the markets, as the Trade Deficit ballooned last month, posting a deficit of $48.7 billion. This was way above the estimate of $41.1 billion, and represented the highest deficit levels since April. The figures indicate a strong demand for imports by US consumers, a sign of greater consumer spending. Increased consumer confidence and spending is a critical engine for economic growth, but whether the recovery has taken hold and the US economy is headed in the right direction is not at all certain.

There are worrying signs, with the staggering US debt still out of control and stubbornly high unemployment. The fiscal cliff has been averted for now, but the Republicans and Democrats will again have to work together in Congress and make decisions about spending cuts and the debt ceiling. On Monday, the markets will be all ears as Federal Chairman Bernard Bernanke speaks at the University of Michigan in Ann Arbor. Bernanke will discuss monetary policy and the state of the global economy in his remarks. Analysts are hoping to glean some clues with regard to a possible end date for the Federal Reserve's current QE program. Although the Fed has not set a deadline for the end of QE, there has been speculation that the program could end sometime in 2013. This could have major ramifications for the US dollar, since QE is dollar-negative, so an early end to the program would be bullish for the greenback.

GBP/USD for Monday, Jan 14, 2013

GBP/USD Jan 14 at 15:30 GMT

1.6043 H: 1.6154 L: 1.6033

S3 S2 S1 R1 R2 R3
1.5850 1.5930 1.5975 1.6062 1.6135 1.6212

 

GBP/USD Technical

GBP/USD continues to lose ground. The next support line is at 1.5975. This line could face activity if the pound continues to sag. This is followed by support at 1.5930. On the upside, 1.6062, which has been kept busy, is providing weak resistance. This is followed by 1.6135, which has strengthened as the pair trades at lower levels.

• Current range: 1.5975 to 1.6062.

Further levels in both directions:
• Below: 1.5975, 1.5930, 1.5850, 1.5750 and 1.5468.
• Above: 1.6062, 1.6135, 1.6212, 1.6273, 1.6341 and 1.6471.

OANDA Open Positions Ratios

Despite the sharp drops displayed by GBP/ USD, the ratio is unchanged from the weekend. Currently, the short positions make up the larger share of the ratio. Given the volatility in the pair, we can expect the pair to show some movement.
GBP/USD has started the week with sharp losses, as the pound has continued the downward trend which began on Monday. Will the dollar rally continue? With no economic releases scheduled until Tuesday, the markets will be focused on Bernanke. Look for the pair to respond if there are any hints about the end of the current round of QE.

GBP/USD Fundamentals

• 1:20 US FOMC Member Charles Evan Speaks
21:00 US Fed Chairman Bernard Bernanke Speaks at University of Michigan in Ann Arbor

*Key releases are highlighted in bold
*All release times are GMT

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