- The number of buy orders recovered, rising from 53 to 65%
- The distribution between bulls and bears is now equal to one
- The 100-day SMAs keeps preventing the pair from edging higher
- The bottom target is the cluster around 1.5360
- 62% of traders reckon GBP/USD will be at 1.54 or higher in three months
- Upcoming events today: UK Services PMI, US ADP Non-farm Employment Change, US Trade Balance, US ISM Non-Manufacturing PMI, Fed Chair Yellen Testimony, US Crude Oil Inventories
Despite a poor reading of the UK Construction PMI, the Sterling appreciated against most major peers. The only two exceptions were the Aussie and the Loonie, against which the Pound lost 0.52% and 0.22%, respectively. Gains, however, were recorded against the Kiwi (1.24%), the Euro (0.49%) and the Swissie (0.48%), while the British currency remained relatively unchanged against the US Dollar, adding only 0.03%.
Even though activity in the British construction sector declined at the start of the fourth quarter, it still remained above the line of contraction. The Markit/CIPS construction Purchasing Managers' Index (PMI), a gauge measuring the performance of the construction sector, slowed down again in the tenth month of the year to 58.8 from 59.9 in the preceding month. The result was in line with analysts' forecasts. Despite the slight drop, the figure still remained above the 50-point-threshold, indicating the sector's expansion. A reading below 50 represents a contraction, while 50 shows no change.
The latest PMI construction figure was well above the pre-election low of 54.2 booked in April. The survey indicated that the industry was driven by a high level of commercial building activity, while employment in the sector kept on accelerating at its fastest pace since November 2014. Activity increased in all three construction sub-categories. The most recent official data revealed that output in the construction industry was the biggest downward drag on the GDP in general in the third quarter, tumbling by 2.2% - the biggest fall since the third quarter of 2012.
UK Services PMI and US ADP Non-Farm Employment Change
From the UK side the only important even is the Services PMI, which is released by both the Chartered Institute of Purchasing & Supply and the Markit Economics and is an indicator of the economic situation in the UK services sector. It captures an overview of the condition of sales and employment. It is worth noting that the UK service sector does not influence, either positively or negatively, the GDP as much as the Manufacturing PMI does. According to the forecast the Services PMI is expected to rise, but a number of US fundamentals could still push the Cable lower. From the US side, the most important even is the ADP Non-Farm Employment Change, released by the Automatic Data Processing, Inc. It is a measure of the change in the number of employed people in the US. It also provides some insight to the Payrolls data on Friday, therefore, could cause substantial volatility. The Employment Change is expected to worsen, but the US Trade Balance to improve. The Fed's Chair is also scheduled to speak today, with information concerning the interest rate hike expected to be provided.
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 risks falling under 1.54
Even though the Sterling appreciated against the US Dollar, the pair gained only four pips. The tough cluster around 1.5360 helped the Cable to recover from intraday losses and remain afloat. A breach of the given demand area is likely to trigger a sell-off all the way towards the up-trend (currently around 1.5210), in which the GBP/USD has been trading since April. Meanwhile, the 100-day SMA keeps providing immediate resistance around 1.5475, but is unlikely to be reached, as the 55-day SMA is on the edge of breaching the 200-day one, thus, triggering a sharp decline in the medium-term.
Daily chart
Yesterday's volatility was limited by the 200-hour SMA, helping the pair to restore losses and end the day slightly higher. A break through the given SMA is also likely to push the GBP/USD towards the support trend-line, as it only bolsters the daily chart's strong support cluster.
Hourly chart
Neutral sentiment
The distribution between bulls and bears is now equal to one, whereas the number of buy orders recovered, rising from 53 to 65%.
The distribution between the bulls and bears at OANDA barely changed, as 52% of open positions are short and 48% are long. On the other hand, the proportion of bears at SAXO Bank increased once more, with the gap between short and long positions slightly wider. Bulls now take up 43% of the market, while bears-the remaining 57%.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD above 1.54 in three months
There appears to be no clear view in the market how the Cable is going to perform during the next three months, but 62% of survey participants reckon that GBP/USD will be at 1.54 or higher. Judging by the results of the poll conducted in October, 17% of traders expect the Sterling to cost between 1.58 and 1.60 US dollars in the beginning of February. At the same time, 11% of the estimates are that the UK currency will be worth somewhere either between 1.54 and 1.56, 1.56 and 1.58 or even less than 1.46 US dollars in three months.
Our respondents, in turn, do not believe that pair will decrease and claim that the closing level will persist during the whole week. Nonetheless, 71% of opened positions are positive, while 28% of voters believe the pair will depreciate, hence, we should not exclude a possible movement even lower.
A trader with a bullish outlook towards the Cable, nuonrg, believes that the GBP Bank Rate on Thursday can cause a thrust to the upside if they follow the Fed. "But first I see a break of a 3 tops high last week. 24 August, 17 Sept, 14 Oct. That needs a retest on level 1.53805 before the bulls will step in," he said. Among the bearish traders, Likerty suggests that the Pound battles important technical areas at 1.5450's. In his opinion it could go both ways, but not too far. "Similarly to the EUR/USD – some bearishness before true reversal is what on the table for this week," the trader mentioned.
On the other hand, nuonrg expects bearish development and states that "the four-hour triple top held the pair capped and price dropped lower", adding that he sees "the down channel continuing to shape the pair with bottom around 1.497 level if it overreacts to the downside".