Forex Market: GBP/USD daily trading outlook

February 4, 2016 7:46 am

Yesterday’s trade saw GBP/USD within the range of 1.4381-1.4653. The pair closed at 1.4585, soaring 1.22% on a daily basis. It has been the 9th gain in the past 23 trading days. In addition, the daily high has been the highest level since January 6th, when a high of 1.4683 was registered.

At 7:44 GMT today GBP/USD was inching down 0.09% for the day to trade at 1.4572. The pair touched a daily low at 1.4566 at 7:30 GMT, undershooting the daily S1 level, and a daily high at 1.4604 during the early phase of the Asian trading session.

On Thursday GBP/USD trading may be influenced by the following macroeconomic reports and other events as listed below.

Fundamentals

United Kingdom

BoE policy decision

At 12:00 GMT Bank of England is to announce its decision on monetary policy. The benchmark interest rate (repo rate) will probably be left unchanged at the record low level of 0.50%. The rate has been at that level since BoE’s policy meeting on March 5th 2009. The repo rate applies to open market operations of the central bank with other banks, building societies, securities firms etc.

At the same time, the pace of BoE’s monetary stimulus will probably be left without change as well, at GBP 375 billion. The asset-purchasing programme, financed by the issuance of central bank reserves was initiated on March 5th 2009, while the scale of this programme was increased by GBP 50 billion to the current GBP 375 billion on July 5th 2012.

The minutes from the Bank’s policy meeting held in January revealed that 8 members of the Monetary Policy Committee voted in favor of keeping borrowing costs intact, while 1 member voted in favor of a rate hike. In addition, all 9 members voted unanimously in favor of keeping the stock of purchased assets without change. All members were in agreement that, when policy tightening is initiated, the Bank Rate may be raised in a more gradual manner than in recent cycles. However, policy makers expressed concerns over the weaker outlook for economic growth and inflation, stressing that past appreciation of the sterling, weak global inflation and limited domestic cost growth were causing additional downward pressure on annual consumer prices.

According to extracts from the Bank’s Monetary Policy Statement, released in January: ”Although a large part of the current deviation of CPI inflation from the 2% target reflects unusually large drags from energy and food prices, core inflation also remains relatively subdued – a consequence of the past appreciation of sterling, weak global inflation and restrained domestic cost growth.”

”The MPC set out its most recent detailed assessment of the economic outlook in the November 2015 Inflation Report. At that time, the Committee’s central view was that, if Bank Rate were to follow the gently rising path implied by the prevailing market yields, CPI inflation would slightly exceed the 2% target in two years’ time and then rise further above it, reflecting modest excess demand. The MPC judged that the risks to this projection lay a little to the downside in the first two years, reflecting global factors.”

”…after faster growth over the previous two years, output growth was steady during 2015 at rates a little below pre-crisis norms. Although indicators of private domestic spending appear healthy, business surveys imply that the near-term outlook for aggregate activity is slightly weaker than in the MPC’s November central projection.”

The policy decision is to be followed by a press conference with BoE Governor Mark Carney, scheduled at 12:45 GMT.

United States

Initial, Continuing Jobless Claims

The number of people in the United States, who filed for unemployment assistance for the first time during the business week ended on January 29th, probably rose to 280 000, according to market expectations, from 278 000 reported in the preceding week. The latter has been the lowest number of claims since the week ended on January 1st 2016, when 277 000 claims were reported.

The 4-week moving average, an indicator lacking seasonal effects, was 283 000, marking a decrease by 2 250 compared to the preceding week’s revised up average.

The business week, which ended on January 22nd has been the 46th consecutive week, when jobless claims stood below the 300 000 threshold, which implied a healthy labor market.

Initial jobless claims number is a short-term indicator, reflecting lay-offs in the country. In case the number of claims met expectations or increased further, this would have a moderate bearish effect on the US dollar.

The number of continuing jobless claims probably fell to the seasonally adjusted 2 240 000 during the business week ended on January 22nd from 2 268 000 in the preceding week. The latter represented an increase by 49 000 compared to the revised up number of claims reported in the week ended on January 8th. This indicator reflects the actual number of people unemployed and currently receiving unemployment benefits, who filed for unemployment assistance at least two weeks ago.

The Department of Labor is to release the weekly report at 13:30 GMT.

Factory Orders

Factory orders in the United States probably shrank 2.8% in December compared to November, according to the median estimate by experts, following another 0.2% drop in the preceding month. If expectations were met, this would be the sharpest monthly rate of decline since December 2014, when a 3.5% contraction was reported. Excluding the sector of transportation, factory orders went down 0.3% in November from a month ago. This indicator reflects the total value of new purchase orders, placed at manufacturers for durable and non-durable goods, and can provide insight into inflation and growth in the US sector of manufacturing. In case the general index of new orders dropped at a faster-than-anticipated rate, this would have a moderate bearish effect on the US dollar, as it implies future growth slowdown. The US Census Bureau will release the official data at 15:00 GMT.

Daily and Weekly Pivot Levels

By employing the Camarilla calculation method, the daily pivot levels for GBP/USD are presented as follows:

R1 – 1.4610
R2 – 1.4635
R3 (range resistance) – 1.4660
R4 (range breakout) – 1.4735

S1 – 1.4560
S2 – 1.4535
S3 (range support) – 1.4510
S4 (range breakout) – 1.4435

By using the traditional method of calculation, the weekly pivot levels for GBP/USD are presented as follows:

Central Pivot Point – 1.4270
R1 – 1.4393
R2 – 1.4539
R3 – 1.4662

S1 – 1.4124
S2 – 1.4001
S3 – 1.3855

Where to Trade

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