Yesterday’s trade saw GBP/USD within the range of 1.4378-1.4476. The pair closed at 1.4410, shedding 0.24% on a daily basis. It has been the eighth drop in the past nine trading days and also a second consecutive one.
At 8:06 GMT today GBP/USD was losing 0.07% for the day to trade at 1.4400. The pair touched a daily low at 1.4390 during early Asian trading session, overshooting the daily S2 level, and a daily high at 1.4427 also during the early hours of the Asian session. Support may be received at the low from January 13th (1.4378) and then – at the low from January 12th (1.4350). Resistance may be encountered at the hourly 21-period EMA (1.4417), then – at the current daily high (1.4427) and finally – at the hourly 55-period EMA (1.4447).
On Thursday GBP/USD trading may be influenced by the following macroeconomic reports and other events as listed below.
Fundamentals
United Kingdom
BoE policy decision
At 12:00 GMT Bank of England is to announce its decision on monetary policy. The benchmark interest rate (repo rate) will probably be left unchanged at the record low level of 0.50%. The rate has been at that level since BoEs policy meeting on March 5th 2009. The repo rate applies to open market operations of the central bank with other banks, building societies, securities firms etc.
At the same time, the pace of BoE’s monetary stimulus will probably be left without change as well, at GBP 375 billion. The asset-purchasing program, financed by the issuance of central bank reserves was initiated on March 5th 2009, while the scale of this program was increased by GBP 50 billion to the current GBP 375 billion on July 5th 2012.
The minutes from the Banks policy meeting held in December revealed that 8 members of the Monetary Policy Committee voted in favor of keeping borrowing costs intact, while 1 member voted in favor of a rate hike. In addition, all 9 members voted unanimously in favor of keeping the stock of purchased assets without change. All members were in agreement that, when policy tightening is initiated, the Bank Rate may be raised in a more gradual manner than in recent cycles. However, policy makers expressed concerns over a slowdown in wage growth.
According to extracts from the Banks Monetary Policy Statement, released in December: ”The outlook for inflation reflects the balance between persistent drags from factors such as sterling and world export prices and prospective further increases in domestic cost growth. The MPC’s objective is to return inflation to target sustainably; that is, without an overshoot once persistent disinflationary forces ultimately wane. Given these considerations, the MPC intends to set monetary policy to ensure that growth is sufficient to absorb remaining spare capacity in a manner that returns inflation to the target in around two years and keeps it there in the absence of further shocks.”
”The MPC set out its most recent detailed assessment of the economic outlook in the November Inflation Report. At that time, the Committee’s central view was that if Bank Rate were to follow the gently rising path implied by the prevailing market yields then CPI inflation would exceed slightly the 2% target in two years and then rise further above it, reflecting modest excess demand. The MPC judged that the risks to this projection lay a little to the downside in the first two years, reflecting global factors.”
”The projected return of CPI inflation to the target depends on an increase in domestic cost growth sufficient to balance the drag on prices from very subdued global inflation and past increases in the value of sterling. Despite lower unemployment, nominal pay growth appears to have flattened off recently. This could reflect short-term volatility in the data. But earnings per worker could be affected by changes in the mix of employment, including a fall in average hours, in which case the impact on unit labour costs would be limited. It could also be that lower headline readings of inflation have acted to limit recent nominal pay growth, despite the tightening labour market. The balance between pay and productivity growth remains a key aspect of the MPC’s policy assessment.”
United States
Import and Export prices
Prices of imported goods in the United States probably fell for a seventh consecutive month in December, going down at a monthly rate of 1.4%, according to market expectations. In November import prices were 0.4% lower from a month ago, driven by a 2.5% decline in fuel import prices and a 0.2% dip in non-fuel prices. In annual terms, prices were 9.4% lower in November, which has been the 16th consecutive month of decline. Generally, lower import prices of goods suggest lower rates of consumer inflation.
Prices of exported goods from the United States probably decreased for a seventh consecutive month in December, falling at a monthly rate of 0.5%. In November export prices were 0.6% lower from a month ago, as agricultural export prices fell 1.1%, while prices of non-agricultural goods dropped 0.3%. In annual terms, export prices slumped 6.3% in November, or for a 15th month in a row. Lower prices of exported goods generally bolster demand abroad, and as US trade accounts for 20% of international trade relations, this also tends to be dollar positive.
The Department of Labor is expected to release the official numbers at 13:30 GMT.
Initial, Continuing Jobless Claims
The number of people in the United States, who filed for unemployment assistance for the first time during the business week ended on January 8th, probably increased to 275 000, according to market expectations, from 277 000 reported in the preceding week. If expectations were met, this would be the lowest number of claims since the business week ended on December 18th, when a figure of 267 000 was reported.
The 4-week moving average, an indicator lacking seasonal effects, was 275 750, marking a decrease by 1 250 compared to the preceding weeks unrevised average.
The business week, which ended on January 1st has been the 43rd consecutive week, when jobless claims stood below the 300 000 threshold, which implied a healthy labor market.
Initial jobless claims number is a short-term indicator, reflecting lay-offs in the country. In case the number of claims met expectations or decreased further, this would have a moderate bullish effect on the US dollar.
The number of continuing jobless claims probably fell to the seasonally adjusted 2 215 000 during the business week ended on January 1st from 2 230 000 in the preceding week. The latter represented an increase by 25 000 compared to the revised up number of claims reported in the week ended on December 18th. This indicator reflects the actual number of people unemployed and currently receiving unemployment benefits, who filed for unemployment assistance at least two weeks ago.
The Department of Labor is to release the weekly report at 13:30 GMT.
Bond Yield Spread
The yield on UK 2-year government bonds went as high as 0.523% on January 13th, after which it closed at 0.495% to remain unchanged compared to January 12th. There have been 12 drops in the past 20 trading days.
The yield on US 2-year government bonds climbed as high as 0.956% on January 13th, after which it closed at 0.903% to lose 2.5 basis points (0.025 percentage point) compared to January 12th. It has been the 13th drop in the past 21 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 0.408% on January 13th from 0.433% on January 12th. The January 13th yield spread has been the lowest one since December 31st, when the difference was 0.396%.
Meanwhile, the yield on UK 10-year government bonds soared as high as 1.776% on January 13th, after which it closed at 1.742% to lose 0.007 percentage point compared to January 12th. It has been the 13th drop in the past 20 trading days and also a second consecutive one.
The yield on US 10-year government bonds climbed as high as 2.151% on January 13th, after which it slipped to 2.079% at the close to lose 2.6 basis points (0.026 percentage point) compared to January 12th. It has been the 14th drop in the past 21 trading days and also a second consecutive one.
The spread between 10-year US and 10-year UK bond yields narrowed to 0.337% on January 13th from 0.356% on January 12th. The January 13th yield difference has been the lowest one since December 31st, when the spread was 0.308%.
Daily and Weekly Pivot Levels
By employing the Camarilla calculation method, the daily pivot levels for GBP/USD are presented as follows:
R1 – 1.4419
R2 – 1.4428
R3 (range resistance) – 1.4437
R4 (range breakout) – 1.4465
S1 – 1.4401
S2 – 1.4391
S3 (range support) – 1.4383
S4 (range breakout) – 1.4356
By using the traditional method of calculation, the weekly pivot levels for GBP/USD are presented as follows:
Central Pivot Point – 1.4613
R1 – 1.4722
R2 – 1.4924
R3 – 1.5033
S1 – 1.4411
S2 – 1.4302
S3 – 1.4100
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