Yesterday’s trade saw GBP/USD within the range of 1.4127-1.4341. The pair closed at 1.4179, losing 0.46% on a daily basis. It has been the 10th drop in the past 12 trading days and also a third consecutive one. The daily low has been the lowest level since March 30th 2009, when a low of 1.4113 was registered.
At 7:59 GMT today GBP/USD was losing 0.10% for the day to trade at 1.4165. The pair touched a daily low at 1.4135 during mid-Asian trading session, overshooting the daily S2 level, and a daily high at 1.4180 during early Asian trade. Support may be expected in the area around the low from January 19th (1.4127) and then – at the low from March 30th 2009 (1.4113). Resistance may be observed at the hourly 21-period EMA (1.4178), then – at the psychological 1.4200 level and finally – at the hourly 55-period EMA (1.4227).
On Wednesday GBP/USD trading may be influenced by the following macroeconomic reports listed below.
Fundamentals
United Kingdom
Claimant Count Change, ILO Unemployment Rate
The number of jobless claims in the United Kingdom probably increased for a fifth consecutive month in December, going up by 2 000, according to market expectations, and following an increase by 3 900 in November. 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 tenth straight month in December. 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 5.2% during the three months to November 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 as well. During the three-month period to September the unemployment rate was reported at 5.3%.
During the period August-October there were 31.30 million people in employment, or an increase by 207 000 compared to the three months to July 2015. Compared to August-October 2014, the figure represented an increase by 505 000. 22.88 million people were in full-time employment during the period August-October, or 338 000 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 167 000 compared to a year ago. The rate of employment was registered at 73.9%, or the highest since 1971, when records were initiated.
During the period August-October 1.71 million people were unemployed, or 110 000 fewer than during the three months to July 2015. Compared to August-October 2014, the figure represented a decrease by 244 000.
In August to October 2015 there were 8.93 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 63 000 compared to the three-month period to July 2015 and a decrease by 126 000 compared to the period August-October 2014.
Average earnings including bonuses probably went up 2.1% during the three months to November compared to the same period a year ago. In the three-month period to October earnings grew 2.4%. 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 rose less 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 1.200 million units in December, according to market expectations, from the seasonally adjusted annual rate of 1.173 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 November starts of single-family houses rose at a monthly rate of 7.6% to 768 000, while starts of buildings with five units or more were 18.1% higher to reach 398 000. Housing starts increased 21.3% in the South and 6.3% in the West, but dropped 8.5% in the Northeast. Housing starts in the Midwest remained unchanged.
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 dropped to 1.200 million in December from an annual level of 1.289 million in November. The latter has been the largest number of permits since June 2015, when a level of 1.343 million was reported. Single-family authorizations increased at a monthly rate of 1.1% to reach 723 000 units in November, while permits of units in buildings with five units or more were reported to have risen 30.8% to 539 000.
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.
Consumer inflation
The annualized consumer inflation in the United States probably accelerated to 0.8% in December, according to market expectations, from 0.5% in November. If so, it would be the highest rate of inflation since December 2014, when the annual CPI rose 0.8%. In monthly terms, the Consumer Price Index (CPI) probably remained flat for a second consecutive month in December, after going up 0.2% in October.
In November upward pressure came from cost of services less energy (up 2.9% year-on-year, following a 2.8% gain in October). Within the category, cost of shelter went up 3.2% year-on-year, cost of medical care rose 2.5% and cost of transportation services increased 2.3%. Additionally, consumers paid more for food in November (up at an annualized rate of 1.3%, but slowing down from a 1.6% increase in October), according to the report by the Bureau of Labor Statistics. The largest downward pressure on the annual CPI came from prices of energy (down 14.7% in November from a year ago, or a lesser decline compared to October).
The annualized core consumer inflation, which is stripped of prices of food and energy, probably accelerated to 2.1% in December, according to expectations, from 2.0% registered in November. If so, Decembers core inflation would be the highest since July 2012.
If the CPI tends to approach the inflation objective, set by the Federal Reserve and considered as providing price stability, or a level below but close to 2%, this will usually bolster the appeal of the US dollar, as it heightens the probability of monetary policy tightening.
The Bureau of Labor Statistics is to release the official CPI report at 13:30 GMT.
GBP/USD tumbles to fresh multi-year lows on BoE Carney speech
On Tuesday the sterling lost ground sharply against the US dollar, after in a statement at the Queen Mary University of London Bank of England Governor Mark Carney said faster growth rate and higher CPI inflation were needed in order to hike interest rates.
According to extracts from Carneys speech: ”…now is not yet the time to raise interest rates. This wasn’t a surprise to market participants or the wider public. They observed the renewed collapse in oil prices, the volatility in China, and the moderation in growth and wages here at home since the summer and rightly concluded that not enough cumulative progress had been made to warrant tightening monetary policy.”
”…we need to see cumulative progress in these three areas to have reasonable confidence that inflation is on track to return to the target and that a modest tightening in monetary policy will be necessary to ensure it does so sustainably. This means: sustained momentum relative to trend; domestic cost growth resuming a path consistent with headline inflation at 2%; and core inflation measures moving notably towards the target.”
”It is clear to me that, since last summer, progress has been insufficient along these dimensions to warrant a tightening of monetary policy. The world is weaker and UK growth has slowed. Due to the oil price collapse, inflation has fallen further and will likely remain very low for longer. This may mean modestly weaker cost growth through this year, with the likely path for inflation, both headline and core, softer as a result.”
Bond Yield Spread
The yield on UK 2-year government bonds went as high as 0.512% on January 19th, after which it closed at 0.453% to lose 1 basis point (0.01 percentage point) compared to January 18th. It has been the 14th drop in the past 24 trading days.
The yield on US 2-year government bonds climbed as high as 0.890% on January 19th, after which it closed at 0.870% to add 2 basis points (0.02 percentage point) compared to January 18th. It has been the 9th gain in the past 25 trading days.
The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, widened to 0.417% on January 19th from 0.387% on January 18th. The January 19th yield spread has been the largest one since January 12th, when the difference was 0.433%.
Meanwhile, the yield on UK 10-year government bonds soared as high as 1.760% on January 19th, or the highest level since January 13th (1.776%), after which it closed at 1.690% to lose 0.005 percentage point compared to January 18th. It has been the 15th drop in the past 24 trading days.
The yield on US 10-year government bonds climbed as high as 2.087% on January 19th, after which it slipped to 2.056% at the close to add 1.1 basis points (0.011 percentage point) compared to January 18th. It has been the 11th gain in the past 25 trading days and also a second consecutive one.
The spread between 10-year US and 10-year UK bond yields widened to 0.366% on January 19th from 0.350% on January 18th. The January 19th yield difference has been the largest one since January 15th, when the spread was 0.373%.
Daily and Weekly Pivot Levels
By employing the Camarilla calculation method, the daily pivot levels for GBP/USD are presented as follows:
R1 – 1.4199
R2 – 1.4218
R3 (range resistance) – 1.4238
R4 (range breakout) – 1.4297
S1 – 1.4159
S2 – 1.4140
S3 (range support) – 1.4120
S4 (range breakout) – 1.4061
By using the traditional method of calculation, the weekly pivot levels for GBP/USD are presented as follows:
Central Pivot Point – 1.4371
R1 – 1.4494
R2 – 1.4731
R3 – 1.4854
S1 – 1.4134
S2 – 1.4011
S3 – 1.3774
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