- 54% of all pending orders are to sell the Pound
- Market sentiment is bullish at 61%
- Immediate resistance is at 1.26
- The closest support is around 1.25
- Upcoming Events: UK CPI and Core CPI, UK PPI Input, UK PRI, US PPI and Core PPI, Fed Chair Yellen's Speech
British manufacturing production rose at a stronger than expected pace in December, despite the country's decision to leave the European Union. Official data released by the Office for National Statistics on Friday showed manufacturing output grew 2.1% in the final month of 2016, following November's upwardly revised gain of 1.4% and surpassing analysts' expectations for a mild increase of 0.3%. On an annual basis, manufacturing production advanced 4.0% in December, the largest gain since April 2014. Meanwhile, industrial output climbed 1.1% in the same month, compared with the previous month's downwardly revised increase of 2.0%/ However, the figure topped analysts' forecasts of a 0.2% decline. Year-over-year, industrial production jumped 4.3%, the strongest increase since January 2011.
Furthermore, the ONS reported that the UK construction sector also grew at a stronger than anticipated pace, rising 1.8% in December, while economists predicted an increase of 1.1%, following November's upwardly revised 0.4% increase. Separately, the ONS reported the UK's trade gap narrowed to 10.9 billion pounds in December, whereas analysts expected an increase to 11.5 billion pounds in the reported period. Meanwhile, November's deficit was revised down to 11.6 billion pounds from the originally reported 12.2 billion pounds.
UK Inflation data to focus on
Today a number of fundamentals are due, with most focus turning to the UK inflation data, namely the CPI, PPI Input and RPI. The CPI is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of GBP is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. The Core CPI, however, excludes seasonally volatile products, such as food and energy, in order to capture an accurate calculation. Second, the PPI Input, it is a monthly measurement of the rate of inflation experienced by the UK manufacturers when buying goods and services. It captures changes in the average price of a fixed basket of goods and services, purchased by the UK manufacturers. From the US side, however, attention could be paid to the PPI, as it measures the average changes in prices in primary markets of the US by producers of commodities in all states of processing. Changes in the PPI are widely followed as an indicator of commodity inflation. Meanwhile, the Core PPI excludes food and energy readings.
GBP/USD attempts to remain above 1.25
The GBP/USD currency pair resumed trade in its consolidation trend on Monday, climbing back above the 1.25 handle. Since the Sterling keeps gravitating towards the 1.25 mark, a bearish development today would not be a surprise. However, the 20-day SMA kept providing the Cable with rather strong support lately, and with the help of the weekly PP, could spark more GBP-buying. Fundamental data might also provide a boost, providing the Pound with the opportunity to reach the 1.26 major level, with the weekly R1 being the closest resistance there. Technical studies, on the other hand, are unable to confirm either scenario.
Daily chart
The hourly chart does not provide a clearer picture, it only confirms the situation on the daily one instead. The pair is clearly seen consolidating around the 1.25 major level, refusing to leave this area for long. The upcoming data could finally provide the Cable with sufficient impetus to leave its current trading range.
Hourly chart
Traders mostly bullish
Both bullish market sentiment and the share of sell orders slid 1% point over the day, now taking up 61% and 54% of the market, respectively.
A slightly less optimistic situation is observed elsewhere. For example, 57% of positions open at OANDA are currently long. This is more than the share of shorts (43%), barely sufficient for the sentiment to be called bullish. Meanwhile, sentiment at Saxo Bank is also bullish, with 58% of traders now being long and the other 42% being short the Sterling against the US Dollar.
Spreads (avg, pip) / Trading volume / Volatility
Traders expect the Cable to keep falling
By the end of the next three months traders expect the Cable to rise above the 1.22 major level, as 55% of survey participants believe so. While the current price is around 1.25, the average forecast for May 14 is 1.2403. The 1.20-1.22 interval is now the most popular price interval, having 15% of the votes, while on the second place are the 1.14-1.16 and the 1.30-1.32 price ranges, with 12% of poll participants choosing each of them. Furthermore, the 1.28-1.30 interval was chosen by 11% of the voters.