- The share of purchase orders increased from 50 to 65%
- Bulls now take up 64% of the market (previously 63%)
- Average three-month forecast is 1.5451
- Immediate resistance is at 1.5245 (weekly R1)
- Dips to be limited around 1.5180
- Upcoming events today: UK Services PMI, US ISM Non-Manufacturing PMI, US Labor Market Conditions Index, US Markit Services PMI
Despite a rather strong reading of the UK Construction PMI on Friday, the Sterling experienced mixed performance over Friday and the weekend. Gains were recorded only against the Yen (0.36%), the US Dollar (0.36%), the Aussie (0.24%) and the Euro (0.13%). The British Pound suffered a serious loss versus the Loonie, namely 0.58%, following with a 0.27% and 0.21% declines against the Kiwi and the Swissie, respectively.
Performance in the UK construction sector improved further in September, as job creation advanced to a three-month high and residential building surged the most in twelve month. At the same time, the growth in builder's activity was also boosted by the improving UK economy and record-low interest rates. The Markit Economics reported that their headline gauge for the construction sector rose to 59.9 points in September, up from 57.3 in August. The PMI measure even outshined market expectations of 57.5 points. Another figure mentioned in Markit's report showed that index for residential building increased to 62.1 in September, following the reading of 59 points in the prior month. The recent data added to evidence of strengthening in the real-estate market in the UK, after house prices reached record highs and mortgage lending surged.
However, even though construction companies indicated that number of new projects rose at a robust pace in September, it appeared that the latest increase was the slowest in five months and much weaker than the post crisis peaks recorded in 2013 and 2014. Meanwhile, the latest survey highlighted the least marked deterioration in supplier performance for almost five years, which some firms linked to greater stocks at vendors. September data also pointed to softer cost pressures in construction sector, with the rate of input price inflation easing to a five-month low.
Paul Bednarczyk, head of research at 4CAST, is optimistic with respect to the world's largest economy over the coming months, saying that "we should be seeing some better US numbers coming through," which will lead the Cable to 1.54. Meanwhile, the analyst considers that "over the next three months Sterling will perform well on a trade-weighted basis," but GBP/USD is still likely to decline to 1.4850. In the longer-term perspective, Bednarczyk is also bearish, setting his 12-month forecast at 1.42, which will be a story of Dollar strength rather than Sterling weakness.
UK Services PMI, US ISM Non-Manufacturing PMI and US Markit Services PMI
The UK Services PMI is the only relevant event from the British side today. It is a leading indicator of economic health and is considered to be a market mover. The given index is forecasted to improve, thus, boosting the Sterling against most majors. From the US side attention should be paid to the ISM Non-Manufacturing PMI and Markit Services PMI. Both of these indexes are forecasted to worsen, thus putting more pressure on the Greenback after the Non-Farm Payrolls data on Friday.
Ross Walker, economist at Royal Bank of Scotland Group, suspects that GBP/USD may descend to 1.50 by around the middle of 2015, or even down to 1.40 by the end of the year. Ross mentioned that "the main driver in many ways, as well as the main support in recent times, have been the expectations that the Bank of England will raise interest rates at some point next year, probably the beginning 2016."
GBP/USD attempts to extend the rally
The British Pound managed to outperform the US Dollar on Friday and erase weekly losses, amid poor US Non-Farm Payrolls data. H however, gains were still limited by the 23.60% Fibo for the fifth consecutive day. Trade opened above the Fibonacci retracement today, which together with the weekly PP is providing rather strong support, increasing the chances of another rally to occur. Although the weekly R1 is now the immediate resistance, technical indicators keep giving bearish signals, suggesting the Cable is to undergo a correction towards the weekly S1 at 1.5111.
Daily chart
On Friday the 200-hour SMA prevented the Cable from rising higher, whereas the 23.60% Fibo caused the pair to rebound during the weekend and gain enough momentum to stabilise above 1.52. A drop under this major level is hard to imagine (although it is possible), as the support is rather strong.
Hourly chart
Bulls prevailing over bears
Bulls now take up 64% of the market (previously 63%), whereas the share of purchase orders increased from 50 to 65%.
The sentiment at SAXO Bank remains bullish, as 56% of their traders are long the Sterling. Bulls at OANDA also remain in the majority of the market, with 66% of their positions being long (previously 63%).
Spreads (avg, pip) / Trading volume / Volatility
Average three-month forecast is 1.5451
Judging by the results of the poll among Dukascopy website visitors, traders do not seem to expect a lot of change in the Sterling-Dollar exchange rate during the next three months. The average forecast for GBP/USD is to trade at 1.5451 on Jan 5, but this does not fully reflect the structure of the votes. The most frequently chosen price interval is quite far from the mean value, that is the 1.60-1.62 price range, selected by 17% of respondents each, followed in popularity by 1.48-1.50 (13% of respondents).