- The share of buy orders inched up from 46 to 58%
- 59% of all open positions are long
- Immediate resistance is around 1.2430
- The closest support is at 1.2314
- 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.
Attention to Manufacturing PMIs on Tuesday
Since most of major banks have a holiday on Monday, all focus turns to fundamental events on Tuesday, such as the 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.
GBP/USD attempts to post more gains
The British Pound decided to end the day with a blast, as it successfully reclaimed the 1.23 major level on Friday, having surged 84 pips against the US Dollar. Despite such a rally, technical studies insist the Cable is to suffer a loss today. A corrective decline has a solid chance to occur, however, the weekly PP now forms immediate support relatively close to today's opening price. As a result, the GBP/USD pair could fall approximately 40 pips over the day. On the other hand, in case bulls prevail again the 1.2430 area is likely to be the ceiling, where the weekly R1, the monthly PP, the 20 and the 55-day SMAs form strong resistance.
Daily chart
The 200-hour SMA failed to prevent the Cable from advancing on Friday, which resulted in a rather strong surge, with the pair approaching the 1.24 major level. However, the bullish momentum appears to have faded, which could indicate the formation of a descending channel pattern..
Hourly chart
Traders mostly bullish
Bulls slightly retreated over the weekend, as now 59% of all open positions are long. The share of buy orders inched up from 46 to 58%.
A similar situation is observed elsewhere. For example, 65% of positions open at OANDA are currently long. This is more than the share of shorts (35%), more than sufficient for the sentiment to be called bullish. Similarly, sentiment at Saxo Bank is also bullish, with 66% of traders being long and 64% 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 02 is 1.2375. However, the 1.18-1.20 interval is now the most popular one, having 17% of the votes, while on the second place is the 1.20-1.22 price range, with 13% of poll participants choosing each of them. Furthermore, the 1.16-1.18, the 1.22-1.24 and the 1.28-1.30 intervals were chosen by 10% of the voters each.