- The number of sell orders increased from 59 to 61%
- 56% of all open positions are long
- Immediate resistance is around 1.28
- The closest support is circa 1.2725
- Upcoming events: US Trade Balance, US Revised Non-farm Productivity, US Factory Orders
Growth in the largest sector of the British economy accelerated at the fastest pace since January last month, although managers' view of the economy's long-term prospects deteriorated significantly, a private survey revealed on Monday. The Markit/CIPS Services Purchasing Managers' Index advanced to 55.2 in November, following the preceding month's reading of 54.5, while market analysts anticipated a slight fall to 54.2 points. However, business sentiment was at its lowest since July in the reported month and the second-lowest since December 2012 amid the steep drop in the value of the British Pound and uncertainty over the outcome of the withdrawal negotiations between the UK and EU.
Despite the fall in the manufacturing growth rate reported last week by Markit, the economy is still expected to maintain the last quarter's 0.5% growth pace in the Q4. Back in November, the Bank of England revised up its 2016 Q4 economic growth forecast to 0.4% but added that annual growth would fall to 1.4% in 2017 from 2.2% in 2016, mainly driven by higher inflation. According to the Central bank, inflation will climb to 2.7% next year from 0.9% in the latest data. Nevertheless, analysts state the BoE is unlikely to raise interest rates in the near future.
All focus on US fundamentals
Since there are significant fundamental events from the UK side today, all attention shifts to the US data, such as the Trade Balance. It is released by the Bureau of Economic Analysis and the US Census Bureau and is a balance between exports and imports of total goods and services. A positive value shows trade surplus, while a negative value shows trade deficit. It is an event that generate some volatility for the USD. If a steady demand in exchange for US exports is seen, that would turn into a positive growth in the trade balance, and that should be positive for the USD. Another relevant event will be the Factory Orders. They measure the total orders of durable and non-durable goods such as shipments, inventories and orders at the manufacturing level which can offer insight into inflation and growth in the manufacturing sector. Finally, the Non-farm Productivity, which shows the output per hour of labor worked. Non-farm Productivity indicates the overall business health in the US, which has an influence on GDP.
GBP/USD attempts to climb higher
Even though the British currency successfully strengthened against the American Dollar yesterday, it still failed to maintain trade at a fresh two-month high, having closed at 1.2735. On one hand, the Cable could have reached its high for the moment, as technical indicators no longer suggest that more bullish momentum is to follow; on the other hand, the wedge's resistance line near 1.29 is yet to be reached, with sufficient space for a rally present. However, in order to reach the trend-line the pair is required to pierce the 100-day SMA, located around the 1.28 major level.
Daily chart
The Cable continued to edge higher yesterday, resulting in additional confirmations of the rising wedge's lower trend-line both today and yesterday. As a result, downside risks are present, as rising wedge's usually end with a substantial development. On the other hand, the support line could the pair reach the resistance line of a larger scale pattern.
Hourly chart
Traders mostly bullish
Bulls keep losing numbers, as 56% of all open positions are long today (previously 58%). The number of sell orders also increased over the day, namely from 59 to 61%.
A similar situation is observed elsewhere. For example, 62% of positions open at OANDA are currently long. This is more than the share of shorts (38%), more than sufficient for the sentiment to be called bullish. Similarly, sentiment at Saxo Bank is also bullish, with 55% of traders being long and 45% being short the Sterling against the US Dollar.
Spreads (avg, pip) / Trading volume / Volatility
Traders expect no major changes
By the end of the next three months traders expect the Cable to be higher than the level where it is now. While the current price is around 1.24, the average forecast for March 06 is 1.2517. Furthermore, the 1.16-1.18 and the 1.30-1.32 intervals are now the most popular ones, having 13% of the votes each. On the second place in terms of the votes is the 1.28-1.30 (10%) interval, followed also by the 1.18-1.20, 1.22-1.24, 1.24-1.26, 1.26-1.28 and 1.32-1.34 intervals, all with only 9% of the votes. Moreover, 57% all survey participants believe the Cable is to fall above 1.24.