Good news for the British pound helped GBP/USD recover after losing the double bottom yesterday on weak CPI numbers. The pair is back above the lost line. That’s the full half.
The empty half is that the pair wasn’t able to reconquer the round and important 1.60 line and remains at the lower part of the recent trading range.
Let’s see the hourly chart:
The double bottom line is 1.5895. It was touched in mid October and then again in early November. Cable was already surrendering to the strength of the US dollar when inflation data was released yesterday.
Down and up again
Inflation in the UK remained relatively high for quite some time, but it surprisingly dropped to 2.2%, significantly below 2.5% expected. This sent the pair lower, to 1.5854. A recovery was short lived and 1.59 was lost once again.
And then, employment data was excellent once again: Claimant Count Change (or jobless claims), surprised with yet another big drop of 41.7K, much better than 33.2K expected. In addition, last month’s drop was revised from 41.7 to 44.7K. Compared with long months of no more than 25K changes (and to both directions), these big drops which continued into October 2013 are certainly encouraging.
Also the unemployment rate for September didn’t disappoint and fell to 7.6%. This figure is more stubborn, but it is moving in the right direction.
The data helped GBP/USD recover and then it got another boost that sent it up to 1.60: in the quarterly inflation report, the Bank of England sounded quite upbeat. Sentences such as “In the United Kingdom, recovery has finally taken hold” are quite uncommon for central banks.
In addition, the BOE upgraded its growth forecasts for both 2013 and 2014 (to 1.6% and 2.8% respectively) . The accompanying press conference was upbeat as well, with BOE governor Mark Carney stating that “for the first time in a long time you do not need to be an optimist to say the glass is half full”. This optimistic wording, accompanied with a general positive outlook for the economy was indeed enough for 1.60, but not for a long time.
GBP/USD fell afterwards and is trading at 1.5972 at the time of writing. It is important to notice that there is no extraordinary USD pressure: EUR/USD is doing quite well.
GBP/USD still low
Also at 1.60, GBP/USD is in the lower part of the wider 1.5850 to 1.6260 trading range. If we look at the broader technical picture, we can see that GBP/USD broke below uptrend support in October, and this could justify more downwards pressure, despite positive fundamentals.
With a stronger economy, it is hard to see this relative weakness continue for too long. There is still one more important figure this week: retail sales. Next week, we have the meeting minutes from the last policy meeting + hearings in parliament.
We could hear more from the optimistic central bank, and this could push GBP/USD higher in the longer term. In the meantime, the pair is still struggling.
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