Sterling remains bid, but for how long can it sustain it?
This Wednesday the U.S. dollar dropped rather broadly across the board – more so against the Japanese yen, less so against its European counterparties, as currency investors reevaluated their recent expectations that the US Federal Reserve could start reducing its stimulus efforts sometime this summer.
The Fed's next policy meeting will be held next week, on June 18-19, and whilst no change in policy is expected the press conference by Chairman Ben Bernanke is key to understanding the next direction the Greenback is going to take.
The uncertainty over the timing to the Fed exit from its bond buying program also known as QE (Quantitative Easing) which is essentially monthly purchases of bonds in order to boost the economy has unnerved global markets, increasing volatility in currency pairs and pushing the U.S. dollar index to a four-month low.
As we will today observe recent price action in the GBP/USD pair, it’s worth mentioning to binary options investors that we had a positive data release out of the UK yesterday - signs that Britain's economy was strengthening, has put a floor under the pound sterling, which rose to a three-week high against the euro and inched towards a four-month peak against the US dollar.
The UK reported that the number of Britons claiming unemployment benefit fell more than expected in May to its lowest level in two years. The number of unemployed people in the country dropped by 8.6K in the three months to May, following an 11.8K drop reported in the three months to April. This result was way better than the expected 5K decrease.
The Unemployment Rate remained at 7.8% in May, matching market consensus. Average Hourly Earnings excluding bonuses ticked up 0.9% in the three months to May, following a +0.8% reading in the three months to April and was above expectations of a slowdown in expansion pace to 0.7%. Average Earnings including bonuses increased 1.3%, in comparison with 0.6% growth, way past forecasts of +0.3%.
Looking at the charts we do observe some patterns matching a slowdown in the trend higher in GBP/USD. Yesterday’s data didn’t provide sufficient momentum for the pair to break to decisive new highs which is a sign of caution. However at this point in time we would be more confident in buying dips rather than selling rallies.
First apparent level to do that is in the 1.5660-70 area where support from yesterday’s lows kicks in. On the topside we will look carefully at the figure at 1.57 where stops above have been unscathed so far. Should that level be broken the pair could gain traction to the upside.
As we draw closer to the Retail Sales report out of the US today, the big question mark remains - whether the Fed will get sufficient supportive data from the report to gain confidence in unwinding stimulus measures and hence triggering a rise in the US dollars value. So we advise caution for binary options investors around 12:30 GMT when the report is released.