Yesterday’s trade saw GBP/USD within the range of 1.5314-1.5403. The pair closed at 1.5354, down 0.05% on a daily basis and extending losses from Monday.
At 7:36 GMT today GBP/USD was down 0.05% for the day to trade at 1.5344, which is also the current daily low.
Fundamentals
United Kingdom
Bank of England Minutes
At 9:30 GMT the Bank of England is to publish the minutes from its most recent policy meeting. Released two weeks after the meeting itself, the minutes provide a full account of the policy discussion, including differences of view. They also record the votes of the individual members of the Monetary Policy Committee (MPC). On February 5th all 9 members of the Committee probably voted in favor of keeping the benchmark interest rate unchanged. In addition, all 9 members of the Committee probably voted to keep the stock of purchased assets financed by the issuance of central bank reserves unchanged at GBP 375 billion. In case the central bank demonstrates a hawkish view in regard to inflation pressure and overall economic activity in the UK, this heightens the probability of an interest rate hike, which has a positive effect on the pound. A dovish view, on the other hand, will have the opposite effect.
Inflation rate in the UK is more likely than not to drop below zero, according to the most recent Inflation Report, released by the Bank of England.
”CPI inflation was 0.5% in December 2014, well below the 2% target. The main reason for this was the steep fall in wholesale energy prices during the second half of last year. Inflation is likely to fall further in the near term, and could temporarily turn negative, as falls in energy prices continue to be passed through. Inflation is likely to rebound around the turn of the year as these effects drop out of the annual rate”, as noted in the Inflation Report from February this year.
Claimant Count Change, ILO Unemployment Rate
The number of jobless claims in the United Kingdom probably dropped by 25 000 in January, marking the 28th consecutive month of declines, according to expectations, following another drop by 29 700 in December. At the same time, the claimant count rate, which represents the percentage change of jobless claims compared to the entire work force, probably fell to 2.5% in January from 2.6% during the previous month. If so, this would be the lowest claimant count rate since May 2008.
The rate of unemployment in the UK, estimated in accordance with ILO (International Labour Organization) standards, probably remained steady at 5.8% during the three months to December compared to the same period a year ago. This has been the lowest rate since October 2008. In the period to October 2014 the unemployment rate was registered at 6.0%.
During the period September-November there were 30.80 million people in employment, or an increase by 37 000 compared to the period June-August and also 512 000 more compared to September-November a year earlier. During the same period 1.91 million people were unemployed, or 58 000 fewer than in the period June to August and 418 000 fewer compared to September-November 2013.
In September to November there were 9.09 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 an increase by 66 000 compared to June-August 2014 and by 41 000 compared to September-November 2013.
The rate of unemployment refers to the percentage of economically active people, who are currently unemployed. According to the ILO approach, people who are considered as unemployed are either: 1) out of work, but are actively searching for employment, or 2) out of work and are waiting to be hired again during the next two weeks.
The ILO Unemployment Rate is based on a monthly survey, known as the Labour Force Survey in the United Kingdom, with approximately 40 000 individuals being interviewed every month. This indicator reflects overall economic state in the country, as there is a strong correlation between consumer spending levels and labor market conditions. Low rates of unemployment are accompanied by higher spending, which causes a favorable effect on corporate profits and also accelerates overall growth. In case the rate of unemployment fell more than projected, this would certainly have a bullish effect on the sterling. The official report by the ONS is due out at 9:30 GMT.
United States
Producer prices
United States’ annualized producer price inflation probably slowed down to 0.3% in January, according to the median estimate by experts, from 1.1% in December. If so, this would be the lowest producer inflation since October 2013, when the corresponding index (PPI) climbed at an annualized pace of 0.3%. This index 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. The simple logic behind this indicator is that if 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. Lower-than-expected producer prices would usually have a bearish effect on the greenback.
The nation’s annualized core producer price inflation, which excludes prices of volatile categories such as food and energy, probably decelerated to 2.0% in January from 2.1% in the prior month. The latter has been the largest annual rate of increase in the index since November 2012, when the corresponding annualized PPI gained 2.2%. This indicator is quite sensitive to changes in aggregate demand, thus, it can be used as a leading indicator for economy. However, because of its restrained scope, it is not suitable for future inflation forecasts. The Bureau of Labor Statistics is expected to report the official PPI performance at 13:30 GMT.
Industrial Output, Capacity Utilization Rate
Industrial output in the United States probably expanded 0.3% in January compared to December, following a 0.1% drop in December compared to November. It was the first decline in four months. The latter was a result of a sharp drop in the output of utilities, as warmer-than-usual weather diminished demand for heating.
In December the output of utilities shrank 7.3%, following a revised 4.2% increase in November. Manufacturing output expanded 0.3% in December on a monthly basis, as the production of durable goods increased 0.2%, while the production of non-durable goods was up 0.4%. The output of mining rose 2.2% in December, with much of the strength reflecting increases in oil and gas extraction, according to the report by the Federal Reserve.
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 a coincident indicator, which means that changes in its levels generally echo similar shifts in overall economic activity. A larger-than-projected increase in the index would usually boost demand for 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 increased to 79.9% in January from 79.7% in December. In November the utilization rate was registered at 80.0%, or the highest since March 2008, when a rate of 80.4% 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. High rates of capacity utilization usually lead to inflationary pressure. In general, higher-than-anticipated rates tend to be dollar positive.
FOMC Minutes
At 19:00 GMT the Federal Open Market Committee (FOMC) will release the minutes from its meeting on policy held on January 27th-28th. 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.
According to extracts from the Federal Reserves latest Press Release: ”The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to decline further 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 lower energy prices and other factors dissipate.”
”Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.”
The minutes from FOMC meeting in December showed that interest rates are not likely to rise at least before April.
Pivot Points
According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 1.5357. In case GBP/USD manages to breach the first resistance level at 1.5400, it will probably continue up to test 1.5446. In case the second key resistance is broken, the pair will probably attempt to advance to 1.5489.
If GBP/USD manages to breach the first key support at 1.5311, it will probably continue to slide and test 1.5268. With this second key support broken, the movement to the downside will probably continue to 1.5222.
The mid-Pivot levels for today are as follows: M1 – 1.5245, M2 – 1.5290, M3 – 1.5334, M4 – 1.5379, M5 – 1.5423, M6 – 1.5468.
In weekly terms, the central pivot point is at 1.5340. The three key resistance levels are as follows: R1 – 1.5484, R2 – 1.5570, R3 – 1.5714. The three key support levels are: S1 – 1.5254, S2 – 1.5110, S3 – 1.5024.
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