- Gap between the buy and sell orders is insignificant
- Still no difference between the number of bulls and bears
- Our intra-day target is 1.3240
- Strong resistance around 1.3350
- 59% of traders reckon GBP/USD will be at 1.30 or lower in three months
- Upcoming events: UK Services PMI, US ISM Non-Manufacturing PMI, ADP Non-Farm Employment Change, Crude Oil Inventories
Britain's construction PMI index faced its steepest downturn in seven years in July, suggesting that output in the construction industry dropped considerably, since the economy is at risk of recession after June's Brexit vote. According to the PMI survey, the Markit purchasing managers' index for the sector slipped to 45.9 during the last month, down slightly from June's reading and below 50, which indicates contraction. Economists, in turn had expected the index to reach around 43.8 mark in July. This report follows Monday's survey which released a sharp downturn in factory activity. Today, or on Wednesday, the PMI survey for the services industry will be also published. However, there were also some positive points such as the fact that the negative numbers in construction output was little-changed from June's seven-year low. Moreover some reports showed that demand patterns had been more resilient than forecasted despite the gloomy business outlook.
Immediately after the release of the report, the Pound notably strengthened. GBP/USD was trading at 1.3215 from around 1.3197 ahead of the release of the data, and during the day the UK currency managed to appreciate more than 1.3%, even though the US personal spending release surprised to the upside.
GBP/USD to be driven by the UK and US services PMIs
One of the key indicators of economic health, namely UK services PMI, is expected to show the same contraction as a month ago. According to market consensus, the purchasing managers' index is to come with no change compared to the previous reading at 47.4. Later in the day, there are going to be three major releases on the state of the United States economy. The first one, namely a report from ADP, is to give a hint what to expect from Friday's non-farm payrolls, and two hours later we will get to know whether the services sector in the world's largest economy is able to keep up the pace of growth and whether crude oil inventories in fact declined.
GBP/USD surges to 1.3350; is prepared for more
Yesterday's UK construction PMI was enough of a catalyst to push the Cable out of the triangle. As a result of a positive surprise, the rate has already touched upon the first bullish target at 1.3350, represented by July 13 close and weekly R1. If today's UK data is also strong and the US releases remain neutral, the price will have a good chance of revisiting July highs at 1.3480. Still, considering releases that are to come tomorrow, we could observe a lull today, despite the usually influential numbers that are to be published this Wednesday.
Daily chart
In the hourly chart GBP/USD bounced off of the upper bound of the recently established channel, implying that today we should expect a downward correction within the pattern. Accordingly, our intra-day target is 1.3240, namely the lower bound of the seven-day ascending channel.
Hourly chart
Sentiment reveals indecision among traders
There is virtually no difference between the number of bulls and bears, both camps hold exactly a half of the market. Similarly, the gap between the buy and sell orders is also small—eight percentage points in favour of the latter.
OANDA traders the same sentiment - 49% of the Canada-based foreign exchange company are long and about the same amount, namely 51%, are short the British Pound against the Dollar, down from 56% observed yesterday. There is a little more optimism among the Saxo Bank traders, 56% of whom are bullish on the Pound.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.30 in three months
More than half of traders (59%) believe the British currency is to cost 1.30 or less dollars after a three-month period. The two most popular price intervals were selected by 25% of the voters each, namely the 1.24-1.26, while the second most popular choice implies that the Sterling is to cost between 1.28 and 1.30 dollars in three months, chosen by 19% of the surveyed. At the same time, the mean forecast for Nov 01 is 1.307.