Yesterday’s trade saw GBP/USD within the range of 1.4276-1.4518. The pair closed at 1.4303, losing 0.91% on a daily basis. It has been the 20th drop in the past 32 trading days, a second consecutive one and also the steepest one since January 15th, when the pair went down 1.08%. The daily low has been the lowest level since February 1st, when a low of 1.4224 was registered.
At 7:41 GMT today GBP/USD was losing 0.31% for the day to trade at 1.4259. The pair touched a daily low at 1.4245 at 7:31 GMT, undershooting the range support level (S3), and a daily high at 1.4308 during the early phase of the Asian trading session.
On Wednesday GBP/USD trading may be influenced by the following macroeconomic reports as listed below.
Fundamentals
United Kingdom
Claimant Count Change, ILO Unemployment Rate
The number of jobless claims in the United Kingdom probably decreased for a second consecutive month in January, going down by 3 000, according to market expectations. In December claims were 4 300 fewer. 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 an eleventh straight month in January. 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 fell to 5.0% during the three months to December compared to the same period a year ago, from 5.1% in the three-month period to November. The latter has been the lowest rate since the three-month period to October 2005.
During the period September-November 2015 there were 31.39 million people in employment, or an increase by 267 000 compared to the three months to August 2015. Compared to September-November 2014, the figure represented an increase by 588 000. 22.96 million people were in full-time employment during the period September-November, or 436 000 more compared to the same period a year earlier. At the same time, 8.43 million people were in part-time employment, an increase by 152 000 compared to a year ago. The rate of employment was registered at 74.0%, or the highest since 1971, when records were initiated.
During the period September-November 2015 1.68 million people were unemployed, or 99 000 fewer than during the three months to August 2015. Compared to September-November 2014, the figure represented a decrease by 239 000.
In September to November 2015 there were 8.92 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 93 000 compared to the three-month period to August 2015 and a decrease by 172 000 compared to the period September-November 2014.
Average earnings including bonuses probably went up 1.9% during the three months to December compared to the same period a year ago. In the three-month period to November earnings grew 2.0%. 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 jobless claims dropped more 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 2.5% to 1.177 million units in January, according to market expectations, from the seasonally adjusted annual rate of 1.149 million during the prior month. If expectations were met, this would be the highest number of starts since September 2015, when a figure of 1.206 million was reported. In December starts of single-family houses dropped at a monthly rate of 3.3% to 768 000, while starts of buildings with five units or more were 1.0% lower to reach 381 000. In December, housing starts fell in the Midwest (down 12.4% month-over-month), in the West (down 7.6%) and in the South (down 3.3%), while increasing in the Northeast (up 24.4%).
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 edged down 0.1% to 1.200 million in January from a revised down annual level of 1.204 million in December (1.232 million previously). The latter has been the lowest number of permits since October 2015, when a level of 1.150 million was reported. Single-family authorizations increased at a monthly rate of 1.8% to reach 740 000 units in December, while permits of units in buildings with five units or more were reported to have fallen 11.4% to 492 000.
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 lower-than-anticipated figure is reported, this would have a moderate bearish effect on the US dollar. The official report is due out at 13:30 GMT.
Producer Price Index
Annual producer prices in the United States probably fell for a 12th month in a row in January, by 0.6%, according to the median estimate by experts. If so, this would be the lowest annual drop since February 2015, when producer prices fell 0.6% as well. In December the annualized Producer Price Index (PPI) dropped 1.0%. It reflects the change in prices of over 8 000 products, sold by manufacturers during the respective period. The Producer Price Index (PPI) differs from the Consumer Price Index (CPI), which measures the change in prices from consumer’s perspective, due to subsidies, taxes and distribution costs of different types of manufacturers in the country. In case producers are forced to pay more for goods and services, they are more likely to pass these higher costs to the end consumer. Therefore, the PPI is considered as a leading indicator of consumer inflation. In case annual producer prices fell at a lesser rate than anticipated, this would have a moderate bullish effect on the US dollar.
The nation’s annualized core producer price inflation, which excludes prices of volatile categories such as food and energy, probably accelerated to 0.4% in January from 0.3% in December. The latter has been the lowest annual surge in the core PPI since October 2015. The Bureau of Labor Statistics is expected to report on the official PPI performance at 13:30 GMT.
Industrial Production
Industrial output in the United States probably expanded 0.4% in January, according to market expectations, following five consecutive months of contraction. In December industrial production shrank 0.4% from a month ago.
In December activity in the US mining sector shrank 0.8% compared to a month ago, marking a fourth straight month of decline.
The gauge for utilities registered a 2.0% monthly drop in December, as unusually warm weather conditions continued to weigh on demand for heating.
Manufacturing production, which accounts for almost three quarters of total industrial production, fell 0.1% in December. Production of non-durable goods shrank 0.2%, while production of durable goods rose 0.1% during the month. At the same time, the gauge for other manufacturing industries (publishing and logging) declined 0.5%.
In case the index of industrial output rose more than anticipated in January, this would 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.
FOMC Minutes
At 19:00 GMT the Federal Open Market Committee (FOMC) will release the minutes from its meeting on policy held on January 26th-27th. The minutes offer detailed insights on FOMC’s monetary policy stance. This release is closely examined by traders, as it may provide clues over interest rate decisions in the future. High volatility is usually present after the publication.
In her testimony before the US Congress earlier in February, Fed Chair Janet Yellen expressed concerns that tighter financial conditions and macroeconomic developments abroad could influence the US overall economic outlook. According to excerpts from Yellens testimony before the Committee on Financial Services on February 10th: ”Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar. These developments, if they prove persistent, could weigh on the outlook for economic activity and the labor market, although declines in longer-term interest rates and oil prices provide some offset.”
”It is important to note that even after this increase, the stance of monetary policy remains accommodative. The FOMC anticipates that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate. In addition, the Committee expects that the federal funds rate is likely to remain, for some time, below the levels that are expected to prevail in the longer run.”
”…stronger growth or a more rapid increase in inflation than the Committee currently anticipates would suggest that the neutral federal funds rate was rising more quickly than expected, making it appropriate to raise the federal funds rate more quickly as well. Conversely, if the economy were to disappoint, a lower path of the federal funds rate would be appropriate.”
Daily and Weekly Pivot Levels
By employing the Camarilla calculation method, the daily pivot levels for GBP/USD are presented as follows:
R1 – 1.4325
R2 – 1.4347
R3 (range resistance) – 1.4370
R4 (range breakout) – 1.4436
S1 – 1.4281
S2 – 1.4259
S3 (range support) – 1.4236
S4 (range breakout) – 1.4170
By using the traditional method of calculation, the weekly pivot levels for GBP/USD are presented as follows:
Central Pivot Point – 1.4479
R1 – 1.4608
R2 – 1.4708
R3 – 1.4837
S1 – 1.4379
S2 – 1.4250
S3 – 1.4150
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