GBP/USD Weekly Fundamental Analysis September 10-14, 2012, Forecast

Introduction:  While the ranges are wider (and so should stops be), the lines are rather distinctive, especially towards the borders of the long term wide range. This pair makes for good trades, with the new austerity program implemented in the UK, the GBP is moving more on Fundamentals now.

• The interest rate differential between the Bank of England(BoE) and the Federal Reserve
• High yield and attractive growth in the UK drives GBP/USD higher

Weekly Analysis and Recommendation:

The GBP/USD is broke above 1.60 and is holding at that price over the weekend. The pair is trading now at 1.6009 after hitting a seasonal high of 1.6034. The US dollar weakened on Friday as reports showed that US employers added 96,000 jobs last month, a weak figure that could slow the momentum President Barack Obama hoped to gain from his speech to the Democratic National Convention.

The unemployment rate fell to 8.1 per cent from 8.3 per cent in July. But that was only because more people gave up looking for jobs. People who are out of work are counted as unemployed only if they’re looking for a job.

The government also said that 41,000 fewer jobs were created in July and June than first estimated. The economy has added just 139,000 jobs a month since the start of the year, below 2011′s average of 153,000.

Cash-short state and local governments were a key reason the job market was weaker in June and July than first estimated. Federal, state and local governments cut 39,000 jobs in those months – above the earlier estimate of 18,000. In previous recoveries, governments have typically added jobs, not shed them.

This boosts the possibility of QE from the FOMC this week. The ECB bond buying program is now a reality as Mario Draghi now tries to put his plans to action. The BoE held rates this week but what might come next is not for certain.

The conventional wisdom is that quantitative easing (QE) by central banks causes the currency concerned to weaken. That might be true for some currencies, notably US dollar. For others, including sterling, the implications are more ambiguous, and there is a case for thinking the next round of QE in the UK will be associated with sterling appreciation rather than depreciation.

If surveys of analyst expectations are any guide to what markets are pricing in, there appears to be complete clarity on the policy outlook in the UK. In the US, however, the Federal Open Market Committee’s (FOMC) June statement merely extended the uncertainty.

After the release of the Bank of England’s (BoE) June Monetary Policy Committee (MPC) minutes, analysts surveyed by Reuters see a further bout of BoE QE as a near certainty. The median probability of another tranche of QE at the MPC announcement on July 5 stands at 80%, while 98% expect further QE at some point in the future. In contrast, a survey of primary dealers by Reuters puts the median probability of QE3 in the US at 50% – much as it was ahead of the latest FOMC meeting, but up from around 30% a month ago.

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports and we provide daily updates and outlooks.

Major Economic Events for the week of September 3-7, 2012 actual v. forecast for Euro, GPB, the Franc, and USD

Historical: From 2010 to Present

Highest: 1.6747 USD on April 28, 2011.

Average: 1.5751 USD over this period

Lowest: 1.4229 USD on May 20, 2010.

Economic Highlights of the coming week that affect the Euro, GBP, CHF and the USD

Government Bond Auction

Date Time Country 

Sep 10 09:30 Germany 

Sep 10 15:30 Italy  

Sep 11 00:30 Japan 

Sep 11 08:30 Holland 

Sep 11 09:10 Greece 

Sep 11 09:30 UK 

Sep 11 14:30 UK 

Sep 11 17:00 US 

Sep 12 09:10 Italy  

Sep 12 09:10 Sweden 

Sep 12 09:30 Germany 

Sep 12 09:30 Swiss 

Sep 12 14:30 Sweden 

Sep 12 17:00 US 

Sep 13 00:30 Japan 

Sep 13 09:10 Italy  

Sep 13 09:30 UK 

Sep 13 15:00 US 

Sep 13 17:00 US 

Sep 14 10:00 Belgium