Watching The GBP/USD Cool Down
Blackwell Global | Jan 27, 2014 07:06AM ET
The GBPUSD has progressed aggressively for the past week, with the UK posting some very impressive economic data. The pair’s upward movement has also been aided by the US having a quiet week, in terms of economic releases. However, with next week seeing key US economic data released, alongside the general expectation that the Federal Reserve will taper next Wednesday, it looks like this pair is starting to retrace.
The pair became heavily backed after the UK posted their best retail sales result in nearly a decade, followed by the UK unemployment rate being pronounced as within 0.1% of the Bank of England’s (BoE) threshold target. However, BoE governor Mark Carney has today announced that there is no immediate need to increase interest rates, especially with inflation now under control. This softened the GBP rally.
It looks like the USD is going to strengthen over the next week. On Tuesday, US Consumer Confidence will be widely anticipated. However, considering Advance Retail Sales and Durable Goods Ordersboth impressively surpassed expectations this month, it can be assumed that consumer confidence levels improved last month. Likewise, it is also expected that Thursday’s Gross Domestic Product (GDP) 4th quarter was not as badly hit by October’s famous government shut down, as first feared.
Additionally, it is likely that the Federal Reserve will taper Quantitative Easing (QE), during Wednesday’s FOMC meeting. The US labour market has shown thorough improvements over the past few months, with October’s and November’s Non-Farm Payroll (NFP) adding far more jobs to their economy than forecast. Initial Jobless Claims have also shown gradual improvement. It is being generally accepted that January’s weak NFP will be disregarded, due to the hazardous weather conditions the United States faced over Christmas.
Regarding the technicals, it looks like the pair is now heading south towards the 1.6443 support level, with the next support level down being 1.6382, followed by 1.6329. If this pair strengthens, I can see 1.6573 being used as a minor resistance level. In reference to the RSI, it just touched the overbought boundaries and now looks like it is moving lower.
Overall, after watching this pair accelerate greatly within the past week, buying pressure is starting to cool off. The majority of attention is going to be on the United States for the next week, with essential data to be released such as; Consumer Confidence, Gross Domestic Product and the Federal Reserve QE taper decision.
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In reference to economic releases, the United States has impressed for the past few months. Although January’s NFP was weak, it is still widely expected that the Fed will taper next week and this will strengthen the USD.
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