- 63% of all pending orders are to sell the Pound
- 59% of all open positions are long
- Gains could be capped around 1.28
- Significant support rests circa 1.2624
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Upcoming Events: UK CPI, UK PPI Input, UK RPI, UK HPI, US PPI and Core PPI
British manufacturing and industrial production rose less than expected in April but broke, following three consecutive months of declines. The Office for National Statistics reported on Friday that manufacturing production climbed 0.2% on a seasonally adjusted basis in April, falling behind expectations for a 0.8% rebound and following the preceding month's drop of 0.6%. On a yearly basis, manufacturing production remained unchanged in the reported month, after climbing 2.2% in March. Friday's report also showed that industrial production in Britain advanced 0.2% month-over-month in April, compared to the previous month's fall of 0.5%, although analysts anticipated an increase of 0.7%.
On an annual basis, industrial production declined 0.8% during the reported month, following the preceding month's climb of 1.4%. Other report released by the ONS on Friday showed that the country's goods trade gap narrowed to £10.4B in April, whereas the prior month's trade deficit of £13.4B was revised down to £12.0B. The narrowing of the gap was driven mainly by lower imports that dropped more than 5% in April.
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UK inflation data vs. US PPI
Today on Tuesday a relatively large number of fundamental data releases are due, such as the UK inflation data. First of all, the UK CPI, which is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The CPI is a key indicator to measure inflation and changes in purchasing trends. In ‘Core' CPI the seasonally volatile products, such as food and energy, are excluded in order to capture an accurate calculation. Second, the PPI Output. It is a monthly measurement of the prices changes of goods produced by UK manufacturers. Generally speaking, a price hike generates higher retail prices for consumers. At the same time, the PPI Input measures the rate of inflation experienced by the UK manufacturers when buying goods and services. It captures changes in the average price of a fixed basket of goods and services purchased by the UK manufacturers. The US PPI is also due tomorrow. It, however, measures the average changes in prices in primary markets of the US by producers of commodities in all states of processing. Changes in the PPI are widely followed as an indicator of commodity inflation.
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GBP/USD exposed to more weakness
The GBP/USD currency pair experienced more weakness on Monday, causing the exchange rate to drop below the 1.27 handle. As a result, the monthly S2 at 1.2624 has become the main support now, which should limit any bearish reactions today. Another leg down is the most likely outcome, as technical indicators are giving distinctly bearish signals now. A breach of the monthly S2 is to open the door for the 1.25 mark to be reached by week's end, which would be a two-month low for the Cable. Despite the recent bearish developments, the Pound is still expected to eventually reach the 1.32 zone, where the three-year down-trend is located. Once this situation occurs, that is to be the key point on the Cable's future.
Hourly chart
On a larger scale, namely the daily chart, further weakness is confirmed due to the breach of the wedge support line. Even though the monthly S2 at 1.2624 is providing relatively strong support, it is unlikely to limit all losses, with the 1.25 risking of becoming the next Cable's target. The GBP/USD pair might also negate all gains achieved over the last three months, assuming this week's data turns into Greenback's favour.Daily chart
Read More: Technical Analysis
Traders remain neutral
Market sentiment remains somewhat bullish, as 59% of all open positions are still long. At the same time, there are 63% of all pending orders set to sell the British Pound.
A less optimistic situation is observed elsewhere. The sentiment at OANDA remains bearish, namely 52% of all open positions are short and the remaining 48% are long. Meanwhile, sentiment at Saxo Bank is also bearish, with 56% of traders now being short and the other 44% - long on the Sterling against the US Dollar.
Spreads (avg, pip) / Trading volume / Volatility
Traders see Pound recovering
© Dukascopy Bank SATraders believe the Cable is to rise above the 1.30 major level by the end of the next three months, as 53% of survey participants share this belief. While the current price is around 1.27, the average forecast for September 13 is 1.2837. The 1.34-1.36 range is still the most popular price interval, having 22% of the votes, while on the second place is the 1.20-1.22 interval, with 17% of the voters choosing it.