Yesterday’s trade saw GBP/USD within the range of 1.5025-1.5186. The pair closed at 1.5045, falling 0.64% on a daily basis, or the most since December 2nd, when it slumped 0.86%. It has been the fifth drop in the past seven trading days and also a second consecutive one. The daily low has been the lowest level since December 9th, when a low of 1.5001 was registered.
At 7:32 GMT today GBP/USD was up 0.07% for the day to trade at 1.5050. The pair touched a daily high at 1.5058 at 3:30 GMT, undershooting the daily R1 level. Support may be received at the psychological 1.5000 level at first and after that at December 8th low of 1.4954. Resistance may be encountered at the hourly 21-period EMA (1.5068).
Today GBP/USD trading may be influenced by a number of macroeconomic reports and other events as listed below.
Fundamentals
United Kingdom
Claimant Count Change, ILO Unemployment rate
The number of jobless claims in the United Kingdom probably increased for a fourth consecutive month in November, going up by 2 000, according to market expectations, following an increase by 3 300 in October. At the same time, the claimant count rate, which represents the percentage change of jobless claims compared to the entire work force, probably remained steady at 2.3% for a ninth straight month in November. It has been the lowest claimant count rate in at least 8 years.
The rate of unemployment in the UK, estimated in accordance with ILO (International Labour Organization) standards, probably remained steady at 5.3% during the three months to October compared to the same period a year ago. It has been the lowest rate since the period March to May 2008, when a level of 5.2% was reported. During the three-month period to August the unemployment rate was reported at 5.4%.
During the period July-September there were 31.21 million people in employment, or an increase by 177 000 compared to the three months to June 2015. Compared to July-September 2014, the figure represented an increase by 419 000. 22.80 million people were in full-time employment during the period July-September, or 273 000 more compared to the same period a year earlier. At the same time, 8.42 million people were in part-time employment, an increase by 146 000 compared to a year ago. The rate of employment was registered at 73.7%, or the highest since 1971, when records were initiated.
During the period July-September 1.75 million people were unemployed, or 103 000 fewer than during the three months to June. Compared to July-September 2014, the figure represented a decrease by 210 000.
In July to September 2015 there were 8.97 million people aged between 16 and 64, who were out of work and not seeking or available for employment, according to data by the Office for National Statistics (ONS). This represented a decrease by 22 000 compared to the three-month period to June 2015 and a decrease by 62 000 compared to the period July-September 2014.
Average earnings including bonuses probably went up 2.5% during the three months to October compared to the same period a year ago. In the three-month period to September earnings grew 3.0%. Pay growth has been well above the rate of consumer inflation since the beginning of 2015, which led to a sound increase in real income. However, wage growth is still lower compared to the period preceding the financial crisis.
In case the rate of unemployment met expectations or fell even further while the number of claims increased at a lesser pace than projected, this would have a strong bullish effect on the sterling. The official report by the ONS is due out at 9:30 GMT.
United States
Housing Starts, Building Permits
The number of housing starts in the United States probably increased to 1.140 million units in November, according to market expectations, from the seasonally adjusted annual rate of 1.060 million during the prior month. The latter has been the lowest number of starts since April 2015, when a figure of 1.036 million was reported. In October starts of single-family houses dropped 2.4% to 722 000, while starts of buildings with five units or more were 25.5% lower to reach 327 000. Housing starts fell 18.6% in the South and 16.2% in the West, while the largest increase was observed in the Midwest (+15%), followed by starts in the East (+10.2%).
Housing starts represent a gauge to measure residential units, on which construction has already begun every month. A start in construction is defined as the foundation laying of a building and it encompasses residential housing primarily.
The number of building permits in the country probably increased to 1.155 million in November from an annual level of 1.150 million in October. If expectations were met, Novembers number of permits would be the highest since August, when 1.170 permits were reported. Single-family authorizations increased at a monthly rate of 2.4% to 711 000 units in October, while permits of units in buildings with five units or more were reported to have risen 8.3% to 405 000.
Building permits are permits, issued in order to allow excavation. An increase in the number of building permits and housing starts usually occurs a few months after mortgage rates in the country have been reduced. Authorizations are not required in all regions of the United States. Building permits, as an indicator, also provide clues in regard to demand in the US housing market. In case a higher-than-anticipated figure is reported, this would support demand for the US dollar. The official report is due out at 13:30 GMT.
Industrial production, Capacity utilization
Industrial output in the United States probably expanded at a monthly rate of 0.1% in November, according to market expectations. If so, this would be the first increase in output in the past four months. In October industrial production unexpectedly contracted 0.2% from a month ago. Manufacturing production, which accounts for almost three quarters of total industrial production, expanded 0.4% in October, as the output of durable goods was 0.5% higher, while the production of non-durable goods increased 0.3%. Mining sector output contracted 1.5% during the same period, because of considerable cuts in both the extraction of crude oil and the drilling of oil and gas wells. Output in utilities shrank 2.5% in October compared to a month ago, as a drop for electric utilities was partly neutralized by a surge for natural gas utilities.
The index of industrial production reflects the change in overall inflation-adjusted value of output in the three major sectors mentioned above. The index is sensitive to consumer demand and interest rates. As such, industrial production is an important tool for future GDP and economic performance forecasts. Those figures are also used to measure inflation by central banks as very high levels of industrial production may lead to uncontrolled levels of consumption and rapid inflation. It is also a coincident indicator, which means that changes in its levels generally echo similar shifts in overall economic activity. Therefore, a larger-than-projected monthly increase in the index would usually have a moderate bullish effect on the US dollar.
The Board of Governors of the Federal Reserve is to release the production data at 14:15 GMT.
In addition, Capacity Utilization rate in the country probably remained at 77.5% for a third straight month in November. It has been the lowest utilization rate since June 2011, when a rate of 76.7% was reported. This indicator represents the optimal rate for a stable production process, or the highest possible level of production in an enterprise, in case it operates within a realistic work schedule and has sufficient raw materials and inventories at its disposal. Lower rates of capacity utilization usually imply weaker inflationary pressure.
FOMC policy decision and press conference
The Federal Open Market Committee (FOMC) will probably raise its target for the federal funds rate to 0.375% from 0.250% for the first time in the past 55 policy meetings, according to the median forecast by experts.
In October the Committee left borrowing costs intact, but left the door open for a hike in December, as policy makers abandoned previous warnings regarding the risks global financial and economic developments were posing to US macroeconomic environment.
According to extracts from the FOMC Policy Statement released in October: ”The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring global economic and financial developments. Inflation is anticipated to remain near its recent low level in the near term but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate.”
At the same time, Fed Chair Janet Yellen demonstrated confidence in US economy. According to extracts from the statement Yellen took at the Economic Club of Washington on December 2nd 2015: ”The U.S. economy has recovered substantially since the Great Recession. The unemployment rate, which peaked at 10 percent in October 2009, declined to 5 percent in October of this year. At that level, the unemployment rate is near the median of FOMC participants most recent estimates of its longer-run normal level.”
”On balance, the moderate average pace of real GDP growth so far this year and over the entire expansion has been sufficient to help move the labor market closer to the FOMCs goal of maximum employment. However, less progress has been made on the second leg of our dual mandate–price stability–as inflation continues to run below the FOMCs longer-run objective of 2 percent.”
”I anticipate continued economic growth at a moderate pace that will be sufficient to generate additional increases in employment, further reductions in the remaining margins of labor market slack, and a rise in inflation to our 2 percent objective. I expect that the fundamental factors supporting domestic spending that I have enumerated today will continue to do so, while the drag from some of the factors that have been weighing on economic growth should begin to lessen next year.”
”On balance, economic and financial information received since our October meeting has been consistent with our expectations of continued improvement in the labor market.”
The FOMC will announce its official decision on policy at 19:00 GMT. A rate hike would surely bolster demand for the US dollar. The rate decision will be followed by a press conference with the Fed Chair at 19:30 GMT. It will be closely examined by market participants and analysts for clues over the future path of interest rates after the first hike in almost a decade is introduced.
Bond Yield Spread
The yield on UK 2-year government bonds went as high as 0.659% on December 15th, or the highest level since December 4th (0.709%), after which it closed at 0.648% to add 6.5 basis points (0.065 percentage point) compared to December 14th. It has been a second consecutive trading day of increase.
The yield on US 2-year government bonds climbed as high as 0.988% on December 15th, or the highest level since December 4th (0.991%), after which it closed at 0.972% to add 2.4 basis points (0.024 percentage point) compared to December 14th. It has been the 16th gain in the past 22 trading days and also a second consecutive one.
The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, narrowed to 0.324% on December 15th from 0.365% on December 14th. The December 15th yield spread has been the lowest one since December 11th, when the difference was 0.297%.
Meanwhile, the yield on UK 10-year government bonds soared as high as 1.957% on December 15th, or the highest level since December 4th (1.982%), after which it closed at 1.953% to add 13.2 basis points (0.132 percentage point) compared to December 14th. It has been a second consecutive trading day of increase.
The yield on US 10-year government bonds climbed as high as 2.289% on December 15th, or the highest level since December 7th (2.292%), after which it slipped to 2.266% at the close to add 4.1 basis points (0.041 percentage point) compared to December 14th. It has been the 8th gain in the past 22 trading days and also a second consecutive one.
The spread between 10-year US and 10-year UK bond yields narrowed to 0.313% on December 15th from 0.404% on December 14th. The December 15th yield difference has been the lowest one since November 17th, when the spread was 0.287%.
Daily and Weekly Pivot Levels
By employing the Camarilla calculation method, the daily pivot levels for GBP/USD are presented as follows:
R1 – 1.5060
R2 – 1.5075
R3 (range resistance) – 1.5089
R4 (range breakout) – 1.5134
S1 – 1.5030
S2 – 1.5015
S3 (range support) – 1.5001
S4 (range breakout) – 1.4956
By using the traditional method of calculation, the weekly pivot levels for GBP/USD are presented as follows:
Central Pivot Point – 1.5137
R1 – 1.5320
R2 – 1.5423
R3 – 1.5606
S1 – 1.5034
S2 – 1.4851
S3 – 1.4748
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