GBP/USD Catapults Below 1.6100 After UK Trade Balance Figures

Talking Points:

• UK Total Trade Balance (Jul): -£3348 Actual -£2300 Estimated Vs £2459 Prior.
• UK Total Trade Balance Non EU (Jul): -£4345 Actual -£3600 Estimated Vs £3841 Prior.
• GBP/USD Fell Almost 30 Pips to Trade Below the Critical 1.6100 Level.

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The UK Total Trade Balance in July came in at £3,348 million deficit, which missed market expectations of -£2,300 million deficit. The trade deficit for the UK economy has widened compared to the prior month’s deficit of -£2,459 million. Moreover, UK Total Trade Balance Non EU, a gauge of Britain’s trade with countries outside of Europe, came in at -£4.3 billion in July compared to -£3.8B in June. It also missed market expectations calling for -£3.6 billion. The UK trade balance figures are an important gauge into pressures on the value of the Pound as its one of the biggest components of their Balance of Payments. Trade deficits fundamentally reflects that the Sterling is leaking out of the country and vice versa.

Before the data, the British Pound grinded lower against the US Dollar subsequent to the unexpected risk in Scottish Referendum that caused a 134-pip gap at open. Immediately after the release of the UK Trade Balance figures, GBP/USD fell below the critical 1.6100 level.

Later today at 10:45 GMT, BoE Governor Mark Carney is expected to speak in Liverpool. Any hawkish rhetoric from the BoE Chief may bode-well for the British Pound, which is under immense pressure after YouGov showed a 51 percent “Yes” support leading up to the Scottish Referendum scheduled for September 18.

From a technical panorama, DailyFX Currency Strategist Ilya Spivak mentions near-term support to rest at 1.5950 (100% Fib Exp.) and resistance at 1.6113 (76.4% Fib Exp.). He is tempted to go short GBP/USD but stays disciplinarily out as high-profile commentary from Mark Carney looms ahead. Meanwhile according to DailyFX Speculative Sentiment Index, the ratio of long to short positions in the GBP/USD stands at 1.99 as 63 percent of FXCM retail traders are long.

GBP/USD 5 Minute Chart

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Edward Hyon, DailyFX Research Team

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