The British pound continues to lose ground, although the downward trend has leveled off. GBP/USD is currently trading at the 1.6050 level, and the pound has slid over one cent since Friday. After a very quiet day on Monday, but the markets will have plenty of numbers to work with, following a host of US releases earlier on Tuesday, including retail sales and manufacturing data. The UK was also busy, with housing and inflation releases. The markets displayed little reaction to remarks by Federal Reserve Chairman Bernard Bernanke on Monday, who failed to give any hints as to when the current round of QE might end.
The markets were all ears on Monday, as Federal Reserve Chairman Bernard Bernanke spoke at the University of Michigan. Analysts were looking for any possible clues with regard to an end date for the Federal Reserve’s current Quantitative Easing program. The Fed has not set a deadline for the end of QE, but there has been speculation that the program could end sometime in 2013. This would 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. However, Bernanke did little more than express his concern about the speed of the US recovery. He noted that the economy has shown signs of improvement, but he was still unsatisfied with the economy’s progress. Given these sentiments, it seems unlikely that the Fed will consider ending the current round of QE in 2013, barring a spectacular recovery by the US economy during the year. Underscoring this point, the president of the San Francisco Federal Reserve Bank, John Williams, stated that he expected the Fed to continue its bond buying program “well into the second half of 2013.”
Although Bernanke avoided talking about QE, he was more forthcoming with regard to the debt ceiling issue, which is likely to be a hot topic, if not a full-blown crisis, in February. The US is quickly approaching its debt limit of $16.4 trillion, and Bernanke said Congress must act and address the issue. He further noted that tinkering with interest rates will not make much difference, but that if Congress ensures that the country’s fiscal house is in order, interest rates would rise as the economy improves.
Tuesday saw the release of a host of US data. Retail sales numbers showed improvement, as both Core Retail Sales and Retail Sales beat their respective estimates. Core Retail Sales rose 0.3%, which was better than the estimate of 0.2%. Retail Sales looked even better, as the key indicator hit a four-month high, posting at gain of 0.5%. The estimate stood at 0.2%. The Producer Price Index declined by 0.2%, slightly more than the forecast of -0.1%. Core CPI showed no change, rising a modest 0.1%. This was slightly below the estimate of 0.2%. The positive retail sales numbers were not reflected in today’s manufacturing release, which looked very weak. The Empire State Manufacturing Index dropped -7.8 points, shocking the markets, which had anticipated a gain of 1.9 points. This important index has posted consecutive declines since July, and points to serious weakness in the US manufacturing sector.
In the UK, the markets kept an eye on important housing and inflation releases. RICS House Price Balance pushed out of negative territory for the first time since July 2010. The indicator came in at 0.0%, surprising the markets which had anticipated an 8% decline. The markets are hoping that this improvement is an indication of some activity in the weak UK housing sector. CPI, one of the most important economic indicators, continues to point to robust inflation in the UK. The index posted a rise of 2.7% for the third consecutive month.
GBP/USD for Tuesday, Jan 15, 2013
GBP/USD Jan 15 at 15:40 GMT
1.6067 H: 1.6095 L: 1.6034
GBP/USD has managed to stop the downward trend, at least for now. The pair is testing support at 1.6062. This line was breached earlier today, and could face more activity if the pound gives up more ground. This is followed by support at 1.5975. On the upside, 1.6135 is the next line of resistance. It has strengthened as the pair has moved lower.
• Current range: 1.6062 to 1.6135.
Further levels in both directions:
• Below: 1.6062, 1.5975, 1.5930, 1.5850, 1.5750 and 1.5468.
• Above: 1.6135, 1.6212, 1.6273, 1.6341 and 1.6471.
OANDA Open Positions Ratios
The ratio remains static, despite the drops displayed by GBP/ USD this week. Currently, the short positions make up the larger share of the ratio. Given the volatility of the pair, it is somewhat surprising that the ratio is not showing any movement, and we can expect this to occur at any time.
GBP/USD started the week with sharp losses, although the pound has managed to stem the bleeding. Will the dollar rally continue? Bernanke’s speech was uneventful, as the Fed Chair steered clear of talking about QE. However, there was a host of releases out of out of the US and UK earlier today. There was data from both countries which were not within expectations, and the market’s reaction could have an impact on GBP/USD.
• 00:01 UK RICS House Balance. Estimate -8%. Actual 0%.
• 9:30 UK CPI. Estimate 2.7%. Actual 2.7%.• 9:30 UK PPI Input. Estimate 0.0%. Actual -0.2%.
• 9:30 UK RPI. Estimate 3.0%. Actual 3.1%.
• 9:30 UK Core CPI. Estimate 2.6%. Actual 2.4%.
• 9:30 UK HPI. Estimate 1.7%. Actual 2.1%.
• 9:30 UK PPI Output. Estimate 0.0%. Actual -0.1%.
• 13:00 US FOMC Member Eric Rosengren Speaks.
• 13:30 US Core Retail Sales. Estimate 0.2%. Actual 0.3%.
• 13:30 US PPI. Estimate -0.1%. Actual -0.2%.
• 13:30 US Retail Sales. Estimate 0.2%. Actual 0.5%.
• 13:30 US Core PPI. Estimate 0.2%. Actual 0.1%.
• 13:30 US Empire State Manufacturing Index. Estimate 1.9 points. Actual -7.8 points.
• 15:00 US Business Inventories. Estimate 0.3%. Actual 0.3%.
*Key releases are highlighted in bold
*All release times are GMT
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