Over the last 24 hours the GBP/USD has reversed again and fallen down further to a new six week low close to 1.51, after enjoying a reasonable rally for a couple of days. It has continued to find some support around 1.5160 and this is close to where it presently sits as it consolidates and trades within a very narrow range. This has resulted in seeing the pound at levels not seen since early April. The pound has now experienced a strong fall over the last couple of weeks. Prior to the last couple of weeks, the pound enjoyed a strong couple of weeks and move to new highs above 1.56. It experienced all sorts of bother at 1.56 as it made several pushes to this significant level however it was turned away with excessive supply. For about a week it ran into a wall of resistance right around the 1.56 level which is very evident in the left hand part of the 4 hourly chart below. This showed how much buying pressure there was on the 1.56 level but equally how well that level provided resistance to any movement higher. The pound had enjoyed a very solid couple of weeks moving from the support level at 1.52 to reach new highs at 1.56, a new ten week high.
Back around mid April the pound experienced solid support at 1.52 for about a week which greatly assisted the recent surge higher, and now this level is being called upon again to offer some support and a soft landing, although the pound has drifted a little lower than 1.52 now. Towards the end of last week, we saw some evidence of that as the decline had been slowed down halted, although it has fallen slightly lower since. The last couple of weeks has seen the pound fall strongly and return almost all of its gains from the few weeks before that. About a month ago the 1.54 level provided a little piece of resistance and this level has since been broken as it offered limited support. Now that the pound has drifted back down below 1.54, it may provide some resistance again. During its push to 1.56, the pound was able to find some support at 1.55, although this level was also broken a couple of weeks ago.
Over the last month or so, the GBP/USD has been experiencing a variety of different levels which have played a role on the price action. Towards the end of March the GBP/USD was trading within a range roughly between 1.51 and 1.5250 and now on a couple of occasions it has been able to move outside that range and push higher. A few weeks ago, the 1.5350 level was one of significance as it offered resistance before the GBP/USD was able to move higher through to 1.56. In early March the pound moved to new lows around 1.4830 from a starting point near 1.64 at the beginning of the year. With the surge higher over the last couple of months, the GBP/USD had completely turned around its fortunes from earlier in the year, however it is starting to ease off and return most of the good work.
The catalyst behind the pound’s recent sharp drop was weak inflation numbers out of the UK, as a host of indicators missed their estimates. Although the UK has posted solid numbers for some key releases this month, including Manufacturing Production and Claimant Count Change, the markets “aren’t buying” and continue to give a thumbs down to the prospects of the British economy. If market sentiment continues to be negative, we could soon see the pound test the all-important 1.50 level. Tuesday’s inflation numbers out of the UK were weak across the board, indicating that deflation continues to hobble the struggling British economy. CPI, one of the most important economic indicators, fell from 2.8% to 2.4%, missing the estimate of 2.6%. PPI declined by 2.3%, way off the estimate of -1.2%. RPI climbed 2.9%, but fell short of the forecast of a 3.1% gain. Core CPI rose 2.o%, below the estimate of 2.3%. PPI Output declined 0.1%. missing the estimate of a 0.2% gain. The only indicator to beat market expectations was HPI, which posted a three-month high of 2.7%. This beat the estimate of 2.3%.
GBP/USD May 22 at 04:05 GMT 1.5158 H: 1.5262 L: 1.5112
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During the early hours of the Asian trading session on Wednesday, the GBP/USD is consolidating in a very narrow trading range right around 1.5160 after having recently moved down to a new six week low near 1.51 and then rallied back towards 1.5160. Throughout the first part of this year, the pound fell very strongly from the key resistance level at 1.63 level down to levels not seen in two and a half years and has done well the last month to rally well and move back up above 1.56. Current range: Right around 1.5160.
Further levels in both directions:
• Below: 1.5100.
• Above: 1.5300 and 1.5600.
Shows the ratio of long vs. short positions held for the GBP/USD among all OANDA clients. The left percentage (blue) shows long positions; the right percentage (orange) shows short positions.)
The GBP/USD long positions ratio has moved back up above 50% after the GBP/USD has fallen down to the six week low near 1.51. Trader sentiment remains in favour of long positions.
Economic Releases
- 00:30 AU Westpac Consumer Confidence (May)
- 01:00 AU Internet Skilled Vacancies (Apr)
- 08:00 EU Current Account (Mar)
- 08:30 UK BoE minutes of prior (9th may) MPC meeting
- 08:30 UK Public Borrowing (PSNB ex interventions) (Apr)
- 10:00 UK CBI Industrial Trends (May)
- 12:30 CA Retail Sales (Mar)
- 14:00 US Existing home sales (Apr)
- 18:00 US Fed release minutes of prior (30 Apr/ 01 May) FOMC meeting
- EU European Council Meeting
- JP BoJ MPC – Overnight Rate (May)