- Sell orders take up 58% of the market
- 64% of traders have a positive outlook towards the Sterling
- Immediate resistance is around 1.2314
- The closest support is at 1.2240
- Upcoming Events: UK Manufacturing PMI, US Manufacturing PMI, US Construction Spending
Business activity in the Chicago region dropped unexpectedly in December, official figures showed on Friday. The Institute for Supply Management said its Chicago Purchasing Managers' Index fell to 54.6 points in the reported month after rising to 57.6 in November, while market analysts anticipated a slight deceleration to 56.5. However, any reading above the 50 point-level indicates expansion in business activity. Three of the five barometer components decreased between November and December, whereas employment held steady and supplier deliveries grew modestly. The worse than expected result was mainly driven by a slump in new orders, which fell 6.7 points to 56.5. Despite December's decrease, the Q4 reading reached its two-year high. About 50% of respondents said they expect the new administration to bring positive changes and benefit their businesses, whereas 40% noted that they expect no changes and 9% of respondents project a decline in business activity.
As a result, the EUR/USD pair jumped from 1.0529 ahead of the release to 1.0544, while the GBP/USD advanced from 1.2357 to 1.2377.
All focus is on Manufacturing PMIs today
Among important events on Tuesday the highest impact is likely to be from the UK and US Manufacturing PMIs. The UK Manufacturing PMI is released by both the Chartered Institute of Purchasing & Supply and the Markit Economics. It captures business conditions in the manufacturing sector. As the manufacturing sector dominates a large part of total GDP, the Manufacturing PMI is an important indicator of business conditions and the overall economic condition in the UK. As for the US Manufacturing PMI, it is released by the Markit Economics and the Institute for Supply Management. Another relevant event will be the US Construction Spending. It is an indicator that measures the total amount of spending in the US on all types of construction. The residential construction component is useful for predicting future national new home sales and mortgage origination volume.
GBP/USD struggles to maintain trade above 1.23
Almost all Friday's gains were erased yesterday, as the Cable slipped back under the 1.23 major level. No significant changes are expected today, as the GBP/USD pair more or less remains in a consolidation period. Despite technical indicators giving mixed signals in the daily timeframe, risks are still skewed to the downside, but with the 1.22 mark being the bottom floor at the moment. Once this psychological support is pierced, the next strong demand area will be only around 1.2120, represented by the weekly S2; the monthly S1 and the Bollinger band.
Daily chart
With the GBP/USD pair continuing to decline on Monday, the descending channel's resistance line could now be fully realised. Since the pattern has recently emerged, a breakout is unlikely, implying that the 200-hour SMA is to fail provide support. From this point the Cable could not slide down to 1.20.
Hourly chart
Traders mostly bullish
There are 64% of traders with a positive outlook towards the Sterling today, up from 59% yesterday. The portion of sell orders is once again in the majority, taking up 58% of the market (previously 42%).
A similar situation is observed elsewhere. For example, 64% of positions open at OANDA are currently long. This is more than the share of shorts (36%), more than sufficient for the sentiment to be called bullish. Similarly, sentiment at Saxo Bank is also bullish, with 65% of traders being long and 35% 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 fall under the 1.26 major level, as 66% of survey participants believe so. While the current price is around 1.23, the average forecast for April 03 is 1.2347. However, the 1.18-1.20 interval is now the most popular one, having 17% of the votes, while on the second place are the 1.20-1.22 and the 1.28-1.30 price ranges, with 13% of poll participants choosing each of them. Furthermore, the 1.16-1.18 and the 1.22-1.24 intervals were chosen by 11% of the voters each.