British Pound (GBP) Correction Slows, EUR/GBP Bouncing Near Support at 0.8160 - 20/02
- Last Updated: 03 April 2014
Updated: The GBP exchange rate complex has come under pressure once
April will be pivotal for the UK unit - can the uptrend reassert itself or will we continue to see more of the same?
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By Rob SamsonToday's Live Rates.
1.2031
1.2531
1.9279
1.7517
2.1482
22.6639
In summary...
The British pound inched further off of this week’s four-year peak against the dollar after a soft factory order report added to this week’s generally disappointing data and reduced some pressure off of the BoE to raise rates sooner than previously expected. We also heard from the Bank of England's Weale that rates will likely rise in Spring 2015 - a view held by the markets. All is steady heading into Friday's retail sales data.
15:54: Sterling correction slows
KBC Markets on today's UK FX action:
"EUR/GBP entered calmer waters after the GBP correction earlier this week. The focus turned from the UK data to the news flow from the EMU. EUR/GBP changed hands in the 0.8250 area at the start of trading in Europe. The EMU PMI’s were below census, with France showing an astonishing setback. The euro was sold.
"EUR/GBP joined this broader move, but the 0.82 big figure stayed out of reach. So, the euro loss of the euro was again very moderate. The CBI trends orders rebounded from ‐2 to 3, missing consensus expectations for a bigger pick‐up (6) after last month’s sharp decline. However, the report had no lasting impact on EUR/GBP trading. Cable even reversed most of the intraday losses later in the session."
"EUR/GBP entered calmer waters after the GBP correction earlier this week. The focus turned from the UK data to the news flow from the EMU. EUR/GBP changed hands in the 0.8250 area at the start of trading in Europe. The EMU PMI’s were below census, with France showing an astonishing setback. The euro was sold.
"EUR/GBP joined this broader move, but the 0.82 big figure stayed out of reach. So, the euro loss of the euro was again very moderate. The CBI trends orders rebounded from ‐2 to 3, missing consensus expectations for a bigger pick‐up (6) after last month’s sharp decline. However, the report had no lasting impact on EUR/GBP trading. Cable even reversed most of the intraday losses later in the session."
14:18: The grind lower continues
"GBP/USD continues to grind lower within the mid-1.6600s. More broadly, the pair is approaching support in the 1.6600-30 zone, marking the confluence of previous-resistance-turned-support and the Monthly R1 Pivot. We maintain a neutral bias for now, but will continue to watch the price action for further clues." - Matt Weller at GFT.
13:15: UK interest rise Spring 2015 says Bank's Weale
A Bank of England MPC has almost confirmed an interest rate rise will occur in early 2015, in line with market expectations.
MPC external member Martin Weale said "I think it is very helpful if we try and explain that the most likely path for interest rates is that the first rise will come perhaps in the spring of next year and then the path is likely to be relatively gradual."
MPC external member Martin Weale said "I think it is very helpful if we try and explain that the most likely path for interest rates is that the first rise will come perhaps in the spring of next year and then the path is likely to be relatively gradual."
13:00: Shallow correction in GBP/USD should be viewed as a bullish sign
The following assessment of GBP/USD comes from Craig Erlam at Alpari UK:
"Sterling is edging lower again today, but it is continuing to find support around 1.6667, a previous level of resistance.
"This shallow correction in the pair could be viewed as a bullish sign as there is clearly a lot of interest around the previous resistance level. That said, as you can see on the 4-hour chart, the pressure on this support level isn’t easing up. Quite often when we see these repeated attempts to break through a significant support, those supporting the level will eventually give up and we’ll see quite an aggressive break.
"If we do see this, the next level of support should come around 1.6604, 38.2% retracement of the move from 5 February lows to 17 February highs. The 50-period SMA on the 4-hour chart should also provide support at this level. Below here further support should be found around 1.6536 and 1.6469, 50 and 61.8 fib levels, respectively, as well as 1.6482 from the 200-period SMA on the 4-hour chart."
"Sterling is edging lower again today, but it is continuing to find support around 1.6667, a previous level of resistance.
"This shallow correction in the pair could be viewed as a bullish sign as there is clearly a lot of interest around the previous resistance level. That said, as you can see on the 4-hour chart, the pressure on this support level isn’t easing up. Quite often when we see these repeated attempts to break through a significant support, those supporting the level will eventually give up and we’ll see quite an aggressive break.
"If we do see this, the next level of support should come around 1.6604, 38.2% retracement of the move from 5 February lows to 17 February highs. The 50-period SMA on the 4-hour chart should also provide support at this level. Below here further support should be found around 1.6536 and 1.6469, 50 and 61.8 fib levels, respectively, as well as 1.6482 from the 200-period SMA on the 4-hour chart."
12:21: Is the pound about to descend?
An interesting update from RoboForex concerning the GBP/USD:
"Pound is still consolidating near broken channel. Such market behaviour implies that price may form another descending structure towards level of 1.6580. However, main scenario suggests that instrument may continue growing up towards level of 1.7000."
"Pound is still consolidating near broken channel. Such market behaviour implies that price may form another descending structure towards level of 1.6580. However, main scenario suggests that instrument may continue growing up towards level of 1.7000."
11:13: EUR/GBP - The bias remains bullish
A note provided via spread betting provider IG confirms a short-term bullish bias for EUR/GBP:
"The pair is rebounding above its support. Long positions above 0.821 with targets @ 0.826 & 0.828 in extension. Below 0.821 look for further downside with 0.818 & 0.815 as targets."
"The pair is rebounding above its support. Long positions above 0.821 with targets @ 0.826 & 0.828 in extension. Below 0.821 look for further downside with 0.818 & 0.815 as targets."
10:51: EUR/GBP bouncing at support
More from MIG Bank; regarding the outlook for the euro pound, Luyet says:
EUR/GBP is bouncing near the support at 0.8160. However, the resistance at 0.8254 (50% retracement) has held thus far. Hourly supports lie at 0.8217 (intraday low) and 0.8191 (18/02/2014 low). Another resistance stands at 0.8280 (06/02/2014 low).
"In the longer term, the technical structure remains negative as long as prices remain below the resistance at 0.8350 (13/01/2014 high). Monitor the support implied by the 61.8% retracement (of the 2012-2013 rise) at 0.8160. Another key support can be found at 0.8082 (01/01/2013 low)."
EUR/GBP is bouncing near the support at 0.8160. However, the resistance at 0.8254 (50% retracement) has held thus far. Hourly supports lie at 0.8217 (intraday low) and 0.8191 (18/02/2014 low). Another resistance stands at 0.8280 (06/02/2014 low).
"In the longer term, the technical structure remains negative as long as prices remain below the resistance at 0.8350 (13/01/2014 high). Monitor the support implied by the 61.8% retracement (of the 2012-2013 rise) at 0.8160. Another key support can be found at 0.8082 (01/01/2013 low)."
10:33: GBP/USD must break 1.6742 to reassert uptrend
An analysis by MIG Bank confirms GBP/USD remains in consolidate mode with 1.6742 being key to future gains:
"GBP/USD has broken the key resistance at 1.6668 (24/01/2014 high). The current consolidation near this level suggests a shortterm pullback. A break of the resistance at 1.6742 would confirm a resumption of the underlying uptrend. Hourly supports can be found at 1.6637 and 1.6600 (see also the rising trendline). Another resistance stands at 1.6823.
"In the longer term, the technical structure favours a bullish bias as long as the support at 1.6220 (17/12/2013 low) holds. The decisive break of the resistance at 1.6668 opens the way for a move towards the major resistance at 1.7043 (05/08/2009 high). However, a sustainable move above that level is unlikely in the next few weeks."
"GBP/USD has broken the key resistance at 1.6668 (24/01/2014 high). The current consolidation near this level suggests a shortterm pullback. A break of the resistance at 1.6742 would confirm a resumption of the underlying uptrend. Hourly supports can be found at 1.6637 and 1.6600 (see also the rising trendline). Another resistance stands at 1.6823.
"In the longer term, the technical structure favours a bullish bias as long as the support at 1.6220 (17/12/2013 low) holds. The decisive break of the resistance at 1.6668 opens the way for a move towards the major resistance at 1.7043 (05/08/2009 high). However, a sustainable move above that level is unlikely in the next few weeks."
09:28: A new equilibrium for sterling
"We don’t expect a restart of the sterling rally already at this stage. The UK currency is looking for a new equilibrium in the ‘forward guidance bis’ era. High profile good news is probably needed to inspired further sterling gains," says Leander Dreyer at KBC Markets.
09:22: Bad news out of Asia
The GBP/AUD has been lifted, and equity markets sold, on overnight news that the contraction in manufacturing activity in China accelerated in February according to HSBC / Markit PMI reading.
The flash manufacturing PMI retreated from 49.5 to 48.3; this is the second consecutive month that the PMI index is below the 50-contracion/expansion threshold. The Hang Seng and Shanghai’s Composite lost -1.22% and -0.18% respectively (at the time of writing).
The flash manufacturing PMI retreated from 49.5 to 48.3; this is the second consecutive month that the PMI index is below the 50-contracion/expansion threshold. The Hang Seng and Shanghai’s Composite lost -1.22% and -0.18% respectively (at the time of writing).
08:30: Upside risks to pound exchange rate complex to dominate
"The approach of the completion of the Vodafone-Verizon deal tomorrow and the expectation of GBP/USD buying to follow suggests that GBP should now be well supported, and we would see upside risks dominating from here." - Lloyds Bank.
08:28: UK pay rises to accelerate
Following on from the Lloyds comment at 08:15, the below note issued by Markit will be important to the mid-term valuation of sterling.
Surveys such as the REC/KPMG recruitment industry survey point to pay growth accelerating further in coming months, and raising the prospect of pay starting to rise in real terms by the second half of 2014.
"A recovery in real pay growth is likely to be a key determinant of when the Bank of England considers the UK recovery to be truly sustainable looking, and therefore a trigger for when it may feel the economy can withstand higher interest rates." - Markit.
Surveys such as the REC/KPMG recruitment industry survey point to pay growth accelerating further in coming months, and raising the prospect of pay starting to rise in real terms by the second half of 2014.
"A recovery in real pay growth is likely to be a key determinant of when the Bank of England considers the UK recovery to be truly sustainable looking, and therefore a trigger for when it may feel the economy can withstand higher interest rates." - Markit.
08:15: For the British pound (GBP) inflationary pressures will matter
Lloyds Bank on the shifting drivers of the value of Sterling:
"GBP weakness yesterday in response to the higher than expected unemployment rate outturn was understandable, given the forward guidance focusing on unemployment, but few will expect the 7.0% threshold to be intact by the middle of the year, so the focus on the unemployment rate is perhaps now a bit misplaced. More important for UK policy and GBP should be the general development of inflation pressures, and to that extent the marginal rise in wage growth reported might be seen as an offsetting factor to the unemployment rate dip."
"GBP weakness yesterday in response to the higher than expected unemployment rate outturn was understandable, given the forward guidance focusing on unemployment, but few will expect the 7.0% threshold to be intact by the middle of the year, so the focus on the unemployment rate is perhaps now a bit misplaced. More important for UK policy and GBP should be the general development of inflation pressures, and to that extent the marginal rise in wage growth reported might be seen as an offsetting factor to the unemployment rate dip."
Recap of Wednesday's Labour Market Data
We had a few key data releases driving the UK currency on Wednesday. Markets eventually took the view that the tick higher in the unemployment rate was compensated by the improved wage growth figures. Release of the Minutes of the Bank of England MPC meeting. BoE policymakers showed no disagreement about major changes to the central bank's forward guidance policy in minutes of their discussion about it which were published on Wednesday. Claimant Count Change (Jan) forecast @ -20K. REALISED: -27.6K Average Earnings excluding Bonus (3Mo/Yr) (Dec) forecast @ 0.9%<. REALISED: 1.0%/li> Average Earnings including Bonus (3Mo/Yr) (Dec) forecast @ 1.0%. REALISED: 1.1% ILO Unemployment Rate (3M) (Dec) forecast @ 7.1%. REALISED: 7.2%