- The number of purchase orders remains unchanged at 43%
- Bullish market sentiment returned to last Wednesday's level of 62%,
- Immediate resistance is represented by the monthly S1 at 1.4567
- The Bollinger band, the weekly S1 and the monthly S2 around 1.44 are the nearest support
- 65% of traders reckon GBP/USD will be at 1.50 or lower in three months
- Upcoming events: US Crude Oil Inventories, US Beige Book, US Federal Budget Balance, MPC Official Bank Rate, UK Asset Purchase Facility, US Jobless Claims, US Import Prices, FOMC Member Bullard Speech
Amid a poor reading of the UK Manufacturing Production, the Sterling sustained losses against most major peers on Tuesday. The British Pound declined the most against the Japanese Yen, edging 0.75% lower, followed by 0.65% and 0.64% losses versus the Greenback and the Euro, respectively. The Pound notably also slumped 0.57% against the Swiss Franc and 0.53% versus the Aussie, while the smallest losses were seen against the remaining commodity currencies, namely 0.34% against the Loonie and 0.32% versus the Kiwi.
UK manufacturing and industrial production both dropped unexpectedly in November, according to the Office for National Statistics. Industrial production declined 0.7% in the reported month from October, dragged down by a fall in manufacturing and a drop in North Sea gas extraction, marking the biggest monthly decline since early 2013. At the same time, manufacturing output slid 0.4% against economists' expectations for a 0.1% increase. Measured on an annual basis, manufacturing production shrank 1.2%, marking its fifth straight month of contraction. Economists, however, had predicted a 0.8% slide. Nevertheless, manufacturing production continued to grow on a quarterly basis, climbing 0.5% in the three months to November, the biggest increase since October 2014, and compared with the 0.3% growth in the quarter to October. Still, factory production remained 6.1% below the pre-crisis level peak seen in the first quarter of 2008.
The decrease signalled that the British economy slowed toward the end of 2015 and remains largely reliant on consumer spending and the services sector for growth. The recent data suggest that the UK manufacturing industry will make only a marginal positive contribution to broader economic growth in the fourth quarter of 2015.
US Beige Book and Federal Budget Balance
Since there are not significant events from the UK to influence the Cable, attention should be paid to the US fundamentals today, namely the Fed's Beige Book and the Monthly Budget Statement. The Beige Book reports on the current US economic situation. Through interviews with key business contacts, economists, market experts, and other sources are gathered by each of the 12 Federal Reserve Districts. The survey gives a picture of the overall US economic growth. At the same time, the Monthly Budget Statement is due. It is released by the Financial Management Service and summarizes the financial activities of federal entities, disbursing officers, and Federal Reserve banks. These are not the best market movers, but they tend to have some impact on USD crosses.
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 at the beginning 2016."
GBP/USD attempts to regain the bullish momentum
The Sterling dropped to a fresh five-year low against the Buck on Tuesday, amid disappointment in the Manufacturing Production figures. However, the Cable managed to partially recover from the intraday losses, now facing a rather strong demand around 1.44, represented by the Monthly S2, the weekly S1 and the Bollinger band. This cluster is the last solid obstacle, preventing the GBP/USD from falling to 1.4230, namely the 2010 low. From the technical point of view, the Pound should end the day in the green zone, with a chance to negate Tuesday's losses completely.
Daily chart
The GBP/USD has been trading within the borders of the descending channel for almost two weeks now, with a breach occurring on Tuesday. However, trend-line violations like that tend to occur in channel patterns; they do not imply that the channel lost its viability. The Cable managed to recover and stabilise above the 1.44 level yesterday, preserving the channel and is now on the verge of retesting the support line, which in turn should cause a rebound towards the 1.4480 level – the resistance down-trend.
Hourly chart
Bulls remain strong
Bullish market sentiment returned to last Wednesday's level of 62%, whereas the number of purchase orders remains unchanged at 43%.
Meanwhile, other market participants have somewhat similar outlooks towards the GBP/USD, such as OANDA. At the moment 59% of OANDA traders also hold long positions; however, among SAXO Bank traders, the majority sees the Sterling falling against then US currency, as 52% of them are short the Pound.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.50 in three months
The majority of traders (65%) still believe the British currency is to cost 1.50 or less dollars after a three-month period. The most popular price interval was selected by 30% of the voters, namely the 1.42-1.44 one, while the second most popular choice implies the Pound is to cost between 1.50 and 1.52 dollars in three months. At the same time, the mean forecast for April 13 is 1.477.
Although traders' sentiment improved, a significant number still expect a bearish development, namely 60% of them, compared to 71% last week.
One of the traders of the Dukascopy Community believes the Pound could still outperform the US dollar. This trader, babanu, says that in his opinion "the Sterling might look overextended".
At the same time, on the bearish side of the barricade Jignesh suggests that the markets are showing signs of broad based strength in the USD this week. "The GBP has just made a major stop run to take out 2015 lows," he commented, adding that "selling pressure may be a bit lighter here, as the pair starts to approach major yearly support and accumulation may start to occur for the pair".