Last week the British Pound suffered from the eurozone’s debt crisis and higher unemployment. Last week’s UK macroeconomic stats left much to be desired. Only 3 out of 12 reports came out positive. The UK CPI declined from 5.2% down to 5%, thus matching the forecast. The RPI also lost 0.2%. On the other hand, the core CPI grew by 0.1% up to 3.4%. The release caused a slight upswing of GBPUSD. But in general, the exchange rate stayed within the expected price range. The unemployment claims report showed 5.3K claims even though the figure had been expected to reach 20.4K. The retail sales gained 0.6% instead of a 0.2% decline, which cause a volatility spike.
The Bank of England is convinced that the rate of inflation is going to decline within a couple of months to return to the 2% limit. Even though the rate of inflation has already declined by 5% it is still much higher than the limit. However, the Bank of England is more concerned about the high rate of unemployment, which will eventually result in price cuts. In October the MPC voted for the expansion of the QE program up to 275B pounds. The key interest rate is 0.5%, which is the lowest figure since 2009. However, the UK economy is still in decline as the unemployment keeps growing.
As for the US news block, last week it was fairly optimistic. Last week’s jobless claims declined down to 388K. It means the situation in the US labor market is improving. These favorable data reassure.
However, the mentioned economic reports had little impact on GBPUSD and its volatility. On Monday the currency pair made a sharp decline from the 1.6092 high down to 1.5911. Next day GBPUSD kept declining during the next 2 days, thus breaking below other option barriers - 1.5824 and 1.5721 - and reaching the low of the week at 1.5690.Therefore, GBPUSD passed 402 points during the week.
Geopolitical events have been the main market drivers.
The eurozone debt crisis is probably the main one. Each European country has started selling out their bonds. Will German bonds be sold as good as last week? If so, the common currency will depreciate faster.
Let’s look at this week’s news calendar:
Nov 21st (GMT)
15:00 USD Existing Home Sales
Nov 22nd (GMT)
09:30 GBP Public Sector Net Borrowing
13:30 USD Prelim GDP
19:00 USD FOMC Meeting Minutes
Nov 23rd (GMT)
09:30 GBP MPC Meeting Minutes
13:30 USD Core Durable Goods Orders
13:30 USD Unemployment Claims
Nov 24th (GMT)
09:30 GBP Revised GDP
This week’s major events are MPC Meeting Minutes, Prelim GDP, Revised GDP and Unemployment Claims.
The UK:
Public Sector Net Borrowing. Experts anticipate considerable spending cuts as compared to October (4.3B pounds against 11.4B pounds).
MPC Meeting Minutes. The distribution of votes is still unchanged 0-0-9.
Revised GDP. After a slight increase (+0.2%) in Q2 2011, the preliminary report showed +0.5%. Is it a recovery sign? The revised report is expected to confirm the growth.
The US:
Existing Home Sales. In August the sales dropped from 5.06M down to 4.91M, thus confirming the prolonged decline in the US housing market amid tough lending conditions. This time the indicator is expected to decline down to 4.84M.
Prelim GDP. According to the first release, the US economy gained 2.5% in Q3 2011. The growth will probably be confirmed by the 2nd release. Any result will cause a volatility increase amid global recession expectations.
FOMC Meeting Minutes. After the committee promised to keep the interest rates low and started “Operation Twist”, the latest decision didn’t bring any changes in the committee’s policy.
Core Durable Goods Orders. The index grew by 1.7% in September thus exceeding the forecast by 0.5%. This happened amid federal tax cuts and the 14% depreciation of the US Dollar, which helped to stimulate the US economy. This time experts anticipate a 0.2% increase.
Unemployment Claims. The situation in the US labor market is gradually improving as the amount of unemployment claims declined down to 388K last week. If the amount of claims is below 375K and the rate of unemployment is below 9.0%, we’ll witness a considerable improvement in the labor market.
It is worth paying attention to Germany’s Ifo index. This month it is expected to continue its decline down to 105.7 points, thus reflecting the market fears of the eurozone crisis and its consequences. Nevertheless, the Germany economy is not afraid of a recession.
GDPUSD has made a considerable decline so far. The currency pair has already fallen below the option barrier 1.5721. The next levels of support are 1.5635 and 1.5474, the closest resistance is 1.5824.
Provided by the Department of Options,
